scholarly journals The Excess Smoothness and Sensitivity of Consumption in the V4 Countries

2019 ◽  
Vol 67 (6) ◽  
pp. 1653-1663
Author(s):  
Terézia Vančová
Keyword(s):  
Random Walk ◽  
Vector Autoregression ◽  
Permanent Income ◽  
Disposable Income ◽  
Income Growth ◽  
Permanent Income Hypothesis ◽  
Aggregate Consumption ◽  
Random Walk Hypothesis ◽  
New Information ◽  
Future Income

This paper contributes to the debate on the Permanent Income Hypothesis (PIH) and excess consumption smoothness and sensitivity in the context of conditions in the V4 countries. This paper also shows results contrary to the belief of the Permanent Income Hypothesis/Random Walk Hypothesis that the change in consumption is an innovation which is not predictable by lagged saving or lagged income change. The paper tests the implication of the Permanent Income Hypothesis/Random Walk Hypothesis, using quarterly aggregate data for 1995–2017 in the V4 countries. A vector autoregression for saving and changes in disposable income is used to generate a forecast of declines in disposable income. As a result, when income changes abruptly, the resulting change in consumption is much smoother and conversely, when changes in income are anticipated, consumption responds sensitively. The aggregate consumption is both excessively smooth relative to the new information causing consumers’ revision of previous expectations about current and future income, and excessively sensitive to lagged income growth.

scholarly journals Empirical Tests of the Rational Expectations - Permanent Income Hypothesis: Evidence from Pakistan

1994 ◽  
Vol 33 (4II) ◽  
pp. 1043-1053 ◽  
Author(s):  
Ahmad H. Khalid
Keyword(s):  
Random Walk ◽  
Rational Expectations ◽  
Predictive Power ◽  
Permanent Income ◽  
Consumption Expenditure ◽  
Permanent Income Hypothesis ◽  
Aggregate Consumption ◽  
Current Consumption ◽  
Information Set ◽  
Empirical Tests

The permanent income hypothesis postulates that at a given point in time, an individual's consumption is determined by his lifetime resources and not by his income. Thus, the hypothesis suggests that an individual's consumption will respond only to changes in permanent income. The insertion of the rational expectations theory into Friedman's permanent income hypothesis by Hall (1978),-called the Rational Expectations/Permanent Income Hypothesis (thereafter RE/PIH)changed this view, and suggested that current aggregate consumption is determined only by its own lag. Any information that may help in determining current consumption is already included in last period's consumption. Hence consumption follows a random walk. The testable implication of Hall's hypothesis is that apart from the current period's consumption expenditure, any variable observable in this or earlier periods should not show any predictive power for the next period's consumption expenditure. Therefore, additional lagged values of consumption or any other variable that can reasonably be assumed to be in the consumer's information set at time t should not be statistically significant if regressed over current consumption.

scholarly journals OS MICROFUNDAMENTOS DO CONSUMO: DE KEYNES ATÉ A VERSÃO MODERNA DA TEORIA DA RENDA PERMANENTE

2003 ◽  
Vol 29 ◽  
Author(s):  
Flavia Dias Rangel Oreiro
Keyword(s):  
Life Cycle ◽  
Rational Expectations ◽  
Function Theory ◽  
Permanent Income ◽  
Permanent Income Hypothesis ◽  
Consumption Function ◽  
John Maynard Keynes ◽  
Aggregate Consumption ◽  
Milton Friedman ◽  
Consumption Decision

Este artigo pretende analisar a evolução recente das teorias de consumo, enfatizando os micro-fundamentos do consumo, desde Keynes (1936) até a versão moderna da teoria da renda permanente de Hall- Flavin (1978-1981), bem como inserir o comportamento do consumidor numa ótica intertemporal. Nesse contexto, são discutidas: a teoria de consumo de John Maynard Keynes (1936); os fatos estilizados de Simon Kuznets (1940); a contribuição de Irving Fisher à teoria de consumo ao propor o modelo intertemporal básico de comportamento do consumidor; a teoria da renda permanente de Milton Friedman (1957) e a teoria do ciclo da vida de Franco Modigliani (1963), as quais se baseiam no arcabouço teórico de Fisher para explicar o “enigma do consumo”; e finalmente, a chamada “versão moderna da teoria da renda permanente” de Hall - Flavin (1978-81), que aplica o método de expectativas racionais aos modelos ciclo-da vida/ renda permanente. Abstract The objective of the present article is to analyze the recent evolution of the theories of the consumption function, with a special emphasis over the micro foundations of the consumption decision, since Keynes (1936) until the modern version of the permanent income hypothesis of Hall and Flavin (1978-1981). In this setting we will discuss the following issues: the consumption function theory of John Maynard Keynes, the stylized facts of Kusnets, the Irving Fisher contribution to the consumption function theory by his proposal of an intertemporal framework to analyze consumer behavior; Milton Friedman´s theory of permanent income and Modigliani´s life-cycle hypothesis. All these theories are based upon Irving Fisher framework to explain the “consumption enigma”. Finally we will analyze the Hall-Flavin version of the permanent income hypothesis, which applies the rational expectations method to the models of aggregate consumption based on the life-cycle/permanent income hypothesis.

RELATIVE INCOME VS. PERMANENT INCOME: THE CRISIS OF THE THEORY OF THE SOCIAL SIGNIFICANCE OF CONSUMPTION

2012 ◽  
Vol 34 (3) ◽  
pp. 355-377 ◽  
Author(s):  
ATTILIO TREZZINI
Keyword(s):  
Turning Point ◽  
Relative Income ◽  
Radical Change ◽  
Permanent Income ◽  
Permanent Income Hypothesis ◽  
Social Significance ◽  
Aggregate Consumption ◽  
The Social ◽  
The Usa ◽  
Relative Income Hypothesis

The investigation of aggregate consumption underwent a radical change in the USA during the 1940s and 1950s. Principles deriving from the American Institutionalist tradition attained their greatest popularity in Duesenberry’s formulation just before they were rapidly abandoned. This paper examines this turning point by comparing Duesenberry’s relative income hypothesis and Friedman’s permanent income hypothesis. This also makes it possible to identify a particular feature of Duesenberry’s analysis—its heterogeneity—which must be taken into consideration by those seeking a return to Institutionalist principles in the analysis of aggregate consumption.

Rural land and credit markets, the permanent income hypothesis and proto-industry: evidence from early modern Zurich

2007 ◽  
Vol 22 (3) ◽  
pp. 489-518 ◽  
Author(s):  
ULRICH PFISTER
Keyword(s):  
Life Course ◽  
Labour Force ◽  
Permanent Income ◽  
Land Markets ◽  
Permanent Income Hypothesis ◽  
Major Objective ◽  
Debt Contracting ◽  
The Family ◽  
The Life Course ◽  
Empirical Material

ABSTRACTThe study documents fluctuations of proto-industrial income, of occupation, debt and presence on land markets across the life course for rural households in a major proto-industrial region during the seventeenth and eighteenth centuries. These fluctuations are interpreted on the basis that a major objective of households is to equalize their income across different stages of their development. The permanent income hypothesis is then extended to take into account land purchases and debt-contracting that result from the need to adjust land and capital to fluctuations in the size of the family labour force across the family cycle and from endeavours to improve the family's welfare by increasing the labour to land ratio. The empirical material presented shows marked fluctuations of income from proto-industrial work across the life course and suggests the existence of permanent income-cum-accumulation strategies to cope with these fluctuations.

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