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An Empirical Analysis of Permanent Income Hypothesis Applied to Italy using State Space Models with non zero correlation between trend and cycle

  • Riccardo Corradini

    (University La Sapienza of Rome)

This article explores by an econometric approach the permanent income hypothesis. The classical cointegration analysis applied by Cochrane and the Kalman filter technology with correlated error components are used. The latter approach compared with the former reveals a clear rejection of PIH for USA.These conclusions are reversed for Italy.

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File URL: http://econwpa.repec.org/eps/em/papers/0509/0509009.pdf
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Paper provided by EconWPA in its series Econometrics with number 0509009.

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Length: 30 pages
Date of creation: 05 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpem:0509009
Note: Type of Document - pdf; pages: 30
Contact details of provider: Web page: http://econwpa.repec.org

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  9. Nyblom, Jukka & Harvey, Andrew, 1999. "Tests of Common Stochastic Trends," Cambridge Working Papers in Economics 9902, Faculty of Economics, University of Cambridge.
  10. Carroll, Christopher D., 2009. "Precautionary saving and the marginal propensity to consume out of permanent income," Journal of Monetary Economics, Elsevier, vol. 56(6), pages 780-790, September.
  11. Christopher D. Carroll & Karen E. Dynan & Spencer D. Krane, 2003. "Unemployment Risk and Precautionary Wealth: Evidence from Households' Balance Sheets," The Review of Economics and Statistics, MIT Press, vol. 85(3), pages 586-604, August.
  12. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 01-90, Wharton School Rodney L. White Center for Financial Research.
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  15. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 241-65, February.
  16. 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.
  17. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
  18. Peter N. Ireland, 1995. "Using the permanent income hypothesis for forecasting," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 49-63.
  19. Banerjee, Anindya & Dolado, Juan J. & Galbraith, John W. & Hendry, David, 1993. "Co-integration, Error Correction, and the Econometric Analysis of Non-Stationary Data," OUP Catalogue, Oxford University Press, number 9780198288107, March.
  20. James C. Morley, 2007. "The Slow Adjustment of Aggregate Consumption to Permanent Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 615-638, 03.
  21. Tommaso PROIETTI, 2002. "Some Reflections on Trend-Cycle Decompositions with Correlated Components," Economics Working Papers ECO2002/23, European University Institute.
  22. Christopher D. Carroll & David N. Weil, 1993. "Saving and growth: a reinterpretation," Working Paper Series / Economic Activity Section 140, Board of Governors of the Federal Reserve System (U.S.).
  23. Fabio Busetti & Andrew Harvey, 2007. "Testing for trend," Temi di discussione (Economic working papers) 614, Bank of Italy, Economic Research and International Relations Area.
  24. Christoph Schleicher, 2003. "Structural Time-Series Models with Common Trends and Common Cycles," Computing in Economics and Finance 2003 108, Society for Computational Economics.
  25. Siem Jan Koopman & Neil Shephard & Jurgen A. Doornik, 1999. "Statistical algorithms for models in state space using SsfPack 2.2," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 107-160.
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