IDEAS home Printed from https://ideas.repec.org/p/hhb/aarfin/2000_008.html

Measuring Noise in the Permanent Income Hypothesis

Author

Listed:
  • Engsted, Tom

    (Department of Finance, Aarhus School of Business)

Abstract

Based on a number of deviation measures, Kim (1996) finds that postwar US consumption deviates from the Permanent Income Hypothesis (PIH) by only around 4 percent. In the present paper we investigate in more detail the extent to which the PIH provides a good approximation to US consumption data. We point out some unappealing features in the methods suggested by Kim, and we propose a method that does not have these drawbacks. In particular, we argue that due to the non-stationarity that characterizes consumption and income, deviation measure should be expressed in terms of saving rather than consumption. By applying our proposed method we find that in general US saving deviates fromPIH saving by substantially more than 4 percent. We also document that the behavior of US consumption in the 1990s has turned saving into a non-stationary process, which is strongly at odds with the PIH.

Suggested Citation

  • Engsted, Tom, 2000. "Measuring Noise in the Permanent Income Hypothesis," Finance Working Papers 00-8, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    • Handle: RePEc:hhb:aarfin:2000_008
    Note: Later published in Journal of Macroeconomics
    as

    Download full text from publisher

    File URL: http://www.hha.dk/fin/finance/RESEARCH/D00_8.PDF
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:bla:jecsur:v:16:y:2002:i:3:p:301-55 is not listed on IDEAS
    2. Liping Gao & Hyeongwoo Kim & Yaoqi Zhang, 2013. "Revisiting the Empirical Inconsistency of the Permanent Income Hypothesis: Evidence from Rural China," Auburn Economics Working Paper Series auwp2013-05, Department of Economics, Auburn University.

    More about this item

    Keywords

    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhb:aarfin:2000_008. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Helle Vinbaek Stenholt The email address of this maintainer does not seem to be valid anymore. Please ask Helle Vinbaek Stenholt to update the entry or send us the correct address (email available below). General contact details of provider: https://edirc.repec.org/data/ifhhadk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.