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New Result in Theory of Consumption: Changes in Savings and Income Growth

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  • Cheng K. Wu

    (Fintech Research Associates)

Abstract

Hall (1978) theorized that future consumption could be written only as a function of its current consumption. Since this result is known to be wrong in data, we reexamine, from Flavin's original equations (1981), how they may have reached this conclusion. In the Appendix, we derive a generic permanent income equation and discuss Flavin's imprecision. Furthermore, by replacing one of Flavin's three basic equations and adding the definition of savings, we find that changes in savings should also be a function of labor income growth, a solution anticipated by Modigliani and Brumberg (1952, published 1979).

Suggested Citation

  • Cheng K. Wu, 1997. "New Result in Theory of Consumption: Changes in Savings and Income Growth," Macroeconomics 9706007, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:9706007
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    References listed on IDEAS

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    More about this item

    Keywords

    consumption growth saving income;

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G1 - Financial Economics - - General Financial Markets

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