Premium
A Simple Test of Friedman's Permanent Income Hypothesis
Author(s) -
DEJUAN JOSEPH P.,
SEATER JOHN J.
Publication year - 2006
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2006.00446.x
Subject(s) - permanent income hypothesis , economics , income elasticity of demand , consumption (sociology) , consumer expenditure survey , test (biology) , econometrics , labour economics , demographic economics , aggregate expenditure , macroeconomics , life cycle hypothesis , paleontology , social science , sociology , biology
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.