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Permanent Income Hypothesis (permanent + income_hypothesis)
Selected AbstractsA Simple Test of Friedman's Permanent Income HypothesisECONOMICA, Issue 289 2006JOSEPH P. DEJUAN Friedman's Permanent Income Hypothesis (PIH) predicts that the income elasticity of consumption should be higher for households for which a large fraction of the variation of their income is permanent than for households facing more transitory variations in income. We test this prediction using modern household data from the US Consumer Expenditure Survey. The results offer some support for the PIH. [source] Seasonality and the Life-cycle Permanent Income Hypothesis: Evidence for Australia, the United Kingdom and GermanyAUSTRALIAN ECONOMIC PAPERS, Issue 2 2001Kenneth LeongArticle first published online: 18 DEC 200 Intra-year observed consumption displays substantial seasonality. Consumers allocate their non-durable expenditure over the four quarters of the year, maximising total utility subject to the period-to-period budget constraint. Osborn (1988) derives a seasonally-varying utility function, for which Hall's (1978) consumption function implies a periodic autoregressive model with a unit root. Using quarterly seasonally unadjusted consumption for Australia, the United Kingdom, and Germany, recently developed tests for seasonality and periodicity are used to examine the modified rational expectations life-cycle permanent income hypothesis and to reinforce previous findings in the literature. Seasonal habit persistence is introduced as an alternative model and its empirical adequacy is found to be significant. Finally, a multivariate test of the excess sensitivity puzzle excludes a predictive role for lagged income changes. [source] How Do Families Manage Their Economic Hardship?FAMILY RELATIONS, Issue 4 2010Eunyoung Baek Using data from the 2007 Survey of Consumer Finances, this study examined how families manage their economic hardship. A conceptual model was developed based on risk management theory and the permanent income hypothesis. About half of families used credit and about a third used their own savings to make up the difference between income and spending. The results of multinomial logit analysis showed that families' use of management methods differed when they faced economic hardship, depending on their situation. [source] A re-examination of the excess smoothness puzzle when consumers estimate the income processJOURNAL OF FORECASTING, Issue 5 2001Anurag N. Banerjee Abstract The excess smoothness puzzle is explored using a simple version of the permanent income hypothesis. The new feature is that consumers do not know the observed data-generating process for income. Instead they estimate the income process every period using the past income data and update their income forecasts as new data arrive. Two scenarios are examined: first, where the income has a linear deterministic trend and second, where the income has a constant trend. There is a misspecification bias in the estimate of the marginal propensity to consume (MPC). This bias is of second-order importance in the first scenario while it is of first-order importance in the second. We conclude that the second scenario, which may be relevant for less developed countries, may offer a potential solution to the excess smoothness puzzle. Copyright © 2001 John Wiley & Sons, Ltd. [source] The Impact of Deregulation and Financial Innovation on Consumers: The Case of the Mortgage MarketTHE JOURNAL OF FINANCE, Issue 1 2010KRISTOPHER S. GERARDI ABSTRACT We develop a technique to assess the impact of changes in mortgage markets on households, exploiting an implication of the permanent income hypothesis: The higher a household's expected future income, the higher its desired consumption, ceteris paribus. With perfect credit markets, desired consumption matches actual consumption and current spending forecasts future income. Because credit market imperfections mute this effect, the extent to which house spending predicts future income measures the "imperfectness" of mortgage markets. Using micro-data, we find that since the early 1980s, mortgage markets have become less imperfect in this sense, and securitization has played an important role. [source] TIME VARIABILITY IN MARKET RISK AVERSIONTHE JOURNAL OF FINANCIAL RESEARCH, Issue 3 2009Dave Berger Abstract We adopt realized covariances to estimate the coefficient of risk aversion across portfolios and through time. Our approach yields second moments that are free from measurement error and not influenced by a specified model for expected returns. Supporting the permanent income hypothesis, we find risk aversion responds to consumption-smoothing behavior. As income increases, or as the consumption-to-income ratio falls, relative risk aversion decreases. We also document variation in risk aversion across portfolios: risk aversion is highest for small and value portfolios. [source] Seasonality and the Life-cycle Permanent Income Hypothesis: Evidence for Australia, the United Kingdom and GermanyAUSTRALIAN ECONOMIC PAPERS, Issue 2 2001Kenneth LeongArticle first published online: 18 DEC 200 Intra-year observed consumption displays substantial seasonality. Consumers allocate their non-durable expenditure over the four quarters of the year, maximising total utility subject to the period-to-period budget constraint. Osborn (1988) derives a seasonally-varying utility function, for which Hall's (1978) consumption function implies a periodic autoregressive model with a unit root. Using quarterly seasonally unadjusted consumption for Australia, the United Kingdom, and Germany, recently developed tests for seasonality and periodicity are used to examine the modified rational expectations life-cycle permanent income hypothesis and to reinforce previous findings in the literature. Seasonal habit persistence is introduced as an alternative model and its empirical adequacy is found to be significant. Finally, a multivariate test of the excess sensitivity puzzle excludes a predictive role for lagged income changes. [source] | ||||||||||||||||||||||