A Direct Test of the Permanent Income Hypothesis with an Application to the U.S. States

Joseph P. DeJuan · John J. Seater · Tony S. Wirjanto

22 citations0/0 files storedJournal of money credit and banking

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Monetary Policy and Economic Impact Financial Literacy, Pension, Retirement Analysis Economic theories and models

Abstract

This paper tests the prediction of the permanent income hypothesis (PIH) that news about future income induce a revision in consumption equal to the revision in permanent income. We use time-series data from 48 contiguous U.S. states to perform the test. The empirical results provide some support for the PIH across states.

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References

1979Distribution of the Estimators for Autoregressive Time Series with a Unit Root 1988Testing for a Unit Root in Time Series Regression 1992Efficient Tests for an Autoregressive Unit Root 2010Critical Values for Cointegration Tests 1990Inference in Linear Time Series Models with some Unit Roots 1981Intertemporal Substitution in Consumption 1981The Adjustment of Consumption to Changing Expectations About Future Income 1958A Theory of the Consumption Function

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2012Consumption and precautionary saving: An empirical analysis under both financial and environmental risks 2009Testing the Stochastic Implications of the Permanent Income Hypothesis Using Canadian Provincial Data*

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