Testing the Permanent Income Hypothesis : the Evidence from Canadian Data PDF Download

Author: Tony S. Wirjanto
Publisher: Kingston, Ont. : Institute for Economic Research, Queen's University
ISBN:
Category :
Languages : en
Pages : 24

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Author: Tony S. Wirjanto
Publisher:
ISBN:
Category :
Languages : en
Pages :

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This paper investigates whether there are variants of the permanent income model that are consistent with seasonally unadjusted quarterly postwar Canadian data. The analysis is based on a misspecification-test equation which nests the standard permanent income model. The results obtaineda re somewhatu nfavourablet o the permanent-incomeh ypothesis. The same results also apply to more general models in which the real interest rate is timevarying and the utility function is non-separable in consumption and the stock of durable goods.

Author: Joseph P. DeJuan
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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This paper utilizes relatively unexplored Canadian provincial-level data to investigate an old but still relevant question in macroeconomics as to whether consumption responds to income innovations in a manner consistent with the stochastic implications of the permanent income hypothesis (PIH). The empirical results obtained do not appear to be in accord with the PIH. Instead, consumption's response to income innovations is found to be much weaker than that predicted by PIH; in particular, the response displays an asymmetric pattern in the sense that it is much stronger for negative than positive income innovations. We interpret this evidence of asymmetry as indicative of the presence of liquidity constraints in provincial households.

Author: Tony S. Wirjanto
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Various empirical specifications of the permanent income model are investigated using Canadian aggregate data. Tests for structural changes with known and unknown change point are applied to the models estimated by the generalized method of moments. The proportion of current income individuals is estimated significantly in the range of 0.26 -0.29, while the estimates of the intertemporal elasticity of substitution fall in the range of 0.06-0.08 and are statistically significant. Current income consumers appear to respond to labour income with a fraction of lag, and this fraction is significantly estimated at about 0.85. Lastly there appears to be a decline in liquidity constraints that reflects the financial deregulation in the 1980s. However there is no strong evidence to suggest a substantial long-term decline in the importance of liquidity constraints.

Author: John C. Wiginton
Publisher:
ISBN:
Category : Income
Languages : en
Pages : 38

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Author: Tai-Hsin Huang
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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This study re-evaluates the validity of the joint rational expectations - permanent income hypothesis under the framework of seasonal cointegration using seasonally unadjusted quarterly data from Austria, Canada and Taiwan. Evidence is found that the consumption change only depends on the innovations of the income and the unemployment rate changes, and that agents are rational in forming their expectations, i.e., the joint hypothesis is supported by the data used. However, with the same data set, a similar test based on non-seasonal cointegration tends to reject the joint hypothesis, since the test ignores completely the possible stochastic seasonalities that may contain important information, as has been pointed out by Wallis (1974), embodied in the data.

Author: Nota Kyriazē
Publisher:
ISBN:
Category : Canada
Languages : en
Pages : 48

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Author: Chaiwuth Tangsomchai
Publisher: ProQuest
ISBN: 9780549439868
Category :
Languages : en
Pages : 177

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Author: Charles R. Nelson
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Hall (1978) showed that the permanent income hypothesis implies that consumption (1) follows a random walk, and (2) cannot be predicted by past income. Reexamination of Hall's data results in rejection of the random walk hypothesis in favor of the alternative hypothesis of positively autocorrelated changes. Evidently this is due to Hall's choice of a quadratic utility function. A logrithmic utility function implies a random walk in the log of consumption which is supported by the data. Hall reported that past income had a negative but insignificant relation to consumption. Changes in the log of income, however, do have a positive predictive relation to changes in the log of consumption. The adjustment of consumption to income seems to be spread over two quarters. Flavin's (1981) test of the theory is formally equivalent to Hall's except for assuming stationarity around a time trend. Mankiw and Shapiro (1984) have pointed out that the effect of detrending may be to tend to rejection of the theory when it is in fact correct. For Hall's data the effect of detrending is to reverse the sign of the coefficient on past income. Its magnitude is what the Mankiw-Shapiro analysis predicts under the permanent income hypothesis

Author: James R. Malley
Publisher:
ISBN:
Category : Consumption (Economics)
Languages : en
Pages :

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