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PIH and ROT alternative in view of the intertemporal non-separability of preferences: empirical findings from a Japanese panel data

  • Yoshitsugu Kitazawa

    ()

    (Faculty of Economics, Kyushu Sangyo University)

  • Makoto Ohta

    (Waseda Graduate School of Finance, Accounting and Law)

This paper describes an empirical investigation into the permanent income hypothesis (PIH) and the rule-of-thumb (ROT) alternative hypothesis, both of which allow for the intertemporal non-separability of preferences in the sense that past consumption of the PIH consumers has influence on their current utility. The data used in this study is a Japanese aggregate panel data processed with the Family Income and Expenditure Survey (FIES) for the period 1981-2002, and the GMM estimations for the panel data are carried out for spans within the period. The results demonstrate that the PIH holds for the bubble span 1988-1993 and the serious deflation span 1997-2002, while the ROT alternative holds for the post-bubble depression span 1993-1998.

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File URL: http://www.ip.kyusan-u.ac.jp/keizai-kiyo/dp25.pdf
File Function: First version, 2005
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Paper provided by Kyushu Sangyo University, Faculty of Economics in its series Discussion Papers with number 25.

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Length: 26 pages
Date of creation: Dec 2005
Date of revision:
Handle: RePEc:kyu:dpaper:25
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  1. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  2. Karen E. Dynan, 2000. "Habit Formation in Consumer Preferences: Evidence from Panel Data," American Economic Review, American Economic Association, vol. 90(3), pages 391-406, June.
  3. Runkle, David E., 1991. "Liquidity constraints and the permanent-income hypothesis : Evidence from panel data," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 73-98, February.
  4. Weber, Christian E., 2002. "Intertemporal non-separability and "rule of thumb" consumption," Journal of Monetary Economics, Elsevier, vol. 49(2), pages 293-308, March.
  5. Yih-Luan Chyi & Chao-Hsi Huang, 1997. "An empirical study of the 'rule of thumb' consumption model in five East Asian countries," Applied Economics, Taylor & Francis Journals, vol. 29(10), pages 1271-1282.
  6. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  7. Stephen P. Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 16-88, Wharton School Rodney L. White Center for Financial Research.
  8. Alessie, Rob & Lusardi, Annamaria, 1997. "Consumption, saving and habit formation," Economics Letters, Elsevier, vol. 55(1), pages 103-108, August.
  9. John Y. Campbell & N. Gregory Mankiw, 1989. "Consumption, Income and Interest Rates: Reinterpreting the Time Series Evidence," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 185-246 National Bureau of Economic Research, Inc.
  10. Cushing, Matthew J, 1992. "Liquidity Constraints and Aggregate Consumption Behavior," Economic Inquiry, Western Economic Association International, vol. 30(1), pages 134-53, January.
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  12. repec:fth:harver:1435 is not listed on IDEAS
  13. Ahn, Seung C. & Schmidt, Peter, 1995. "Efficient estimation of models for dynamic panel data," Journal of Econometrics, Elsevier, vol. 68(1), pages 5-27, July.
  14. Fumio Hayashi, 1984. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," NBER Working Papers 1305, National Bureau of Economic Research, Inc.
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  16. Alessandra Guariglia, 2002. "Consumption, habit formation, and precautionary saving: evidence from the British Household Panel Survey," Oxford Economic Papers, Oxford University Press, vol. 54(1), pages 1-19, January.
  17. Frank Windmeijer, 2000. "A finite sample correction for the variance of linear two-step GMM estimators," IFS Working Papers W00/19, Institute for Fiscal Studies.
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