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Permanent Income, Liquidity, and Expenditure on Automobiles: Evidence from Panel Data

  • Bernanke, Ben S

Several recent papers have tested the permanent income-cum- rational expectations hypothesis using data on nondurable or semi-durable consumption. We show how this approach can be extended to the case of durables. An application to panel data on automobile expenditures reveals no evidence against the permanent income hypothesis. This result is unchanged in subsamples segregated by family holdings of liquid assets.

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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 99 (1984)
Issue (Month): 3 (August)
Pages: 587-614

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Handle: RePEc:tpr:qjecon:v:99:y:1984:i:3:p:587-614
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  1. Thomas J. Sargent, 1977. "Rational expectations, econometric exogeneity and consumption," Staff Report 25, Federal Reserve Bank of Minneapolis.
  2. Ferber, Robert, 1973. "Consumer Economics, A Survey," Journal of Economic Literature, American Economic Association, vol. 11(4), pages 1303-42, December.
  3. Wykoff, Frank C, 1970. "Capital Depreciation in the Postwar Period: Automobiles," The Review of Economics and Statistics, MIT Press, vol. 52(2), pages 168-72, May.
  4. Williams, Ross A, 1972. "Demand for Consumer Durables: Stock Adjustment Models and Alternative Specifications of Stock Depletion," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 281-95, July.
  5. F. Thomas Juster & Paul Wachtel, 1974. "Anticipatory and Objective Models of Durable Goods Demand," NBER Chapters, in: Explorations in Economic Research, Volume 1, number 2, pages 136-188 National Bureau of Economic Research, Inc.
  6. Bernanke, Ben S, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, MIT Press, vol. 98(1), pages 85-106, February.
  7. Saul H. Hymans, 1970. "Consumer Durable Spending: Explanation and Prediction," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(2), pages 173-206.
  8. Diewert, W E, 1974. "Intertemporal Consumer Theory and the Demand for Durables," Econometrica, Econometric Society, vol. 42(3), pages 497-516, May.
  9. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  10. Cukierman, Alex, 1980. "The Effects of Uncertainty on Investment under Risk Neutrality with Endogenous Information," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 462-75, June.
  11. Mishkin, Frederic S, 1976. "Illiquidity, Consumer Durable Expenditure, and Monetary Policy," American Economic Review, American Economic Association, vol. 66(4), pages 642-54, September.
  12. Blinder, Alan S, 1981. "Temporary Income Taxes and Consumer Spending," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 26-53, February.
  13. James Tobin, 1956. "Estimation of Relationships for Limited Dependent Variables," Cowles Foundation Discussion Papers 3R, Cowles Foundation for Research in Economics, Yale University.
  14. Lester D. Taylor, 1971. "Saving out of Different Types of Income," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 2(2), pages 383-416.
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