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Hong Kong's Consumption Function Revisited

  • Li-gang Liu

    (Research Department, Hong Kong Monetary Authority)

  • Laurent Pauwels

    (Research Department, Hong Kong Monetary Authority)

  • Andrew Tsang

    (Research Department, Hong Kong Monetary Authority)

This paper revisits the relationship among consumption, income and wealth using Hong Kong data. We find that the permanent income hypothesis is weakly supported by Hong Kong¡¦s consumption data prior to 1997, but it is not supported for the sample period after 1997 and the whole sample period spanning from 1984 to 2006. Furthermore, we find that both anticipated and unanticipated income and wealth effects have influences on Hong Kong¡¦s consumption. While temporary tax changes may have some impact on consumption of durable goods, the evidence that they also affect overall consumption remains limited.

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File URL: http://www.info.gov.hk/hkma/eng/research/working/pdf/HKMAWP07_16_full.pdf
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Paper provided by Hong Kong Monetary Authority in its series Working Papers with number 0716.

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Length: 26 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:hkg:wpaper:0716
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  1. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
  2. Hall, Robert E, 1988. "Intertemporal Substitution in Consumption," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 339-57, April.
  3. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January.
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  5. Perron, P. & Bai, J., 1995. "Estimating and Testing Linear Models with Multiple Structural Changes," Cahiers de recherche 9552, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  6. Martin Browning & Thomas F. Crossley, 2001. "The lifecycle model of consumption and saving," IFS Working Papers W01/15, Institute for Fiscal Studies.
  7. repec:fth:harver:1435 is not listed on IDEAS
  8. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income, and Interest Rates: Reinterpreting the Time Series Evidence," NBER Working Papers 2924, National Bureau of Economic Research, Inc.
  9. Dubravko Mihaljek & John Dodsworth, 1997. "Hong Kong, China; Growth, Structural Change, and Economic Stability During the Transition," IMF Occasional Papers 152, International Monetary Fund.
  10. Marjorie A. Flavin, 1988. "The Excess Smoothness of Consumption: Identification and Interpretation," NBER Working Papers 2807, National Bureau of Economic Research, Inc.
  11. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  12. Drobny, A & Hall, S G, 1989. "An Investigation of the Long-run Properties of Aggregate Non-durable Consumers' Expenditure in the United Kingdom," Economic Journal, Royal Economic Society, vol. 99(396), pages 454-60, June.
  13. Alan S. Blinder & Angus Deaton, 1985. "The Time Series Consumption Function Revisited," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 465-521.
  14. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  15. Joanne Cutler, 2004. "The Relationship between Consumption, Income and Wealth in Hong Kong," Macroeconomics 0403013, EconWPA.
  16. Dor, E & Thurston, T & Weiserbs, D, 1987. "On Testing the Permanent Income Hypothesis and Rational Expectations," Empirical Economics, Springer, vol. 12(3), pages 137-56.
  17. Joanne Cutler, 2004. "The Relationship between Consumption, Income and Wealth in Hong Kong," Working Papers 012004, Hong Kong Institute for Monetary Research.
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