A Direct Test of the Permanent Income Hypothesis with an Application to the U.S. States
Journal of Money, Credit and Banking, Vol. 36, No. 6, pp. 1091-1103, December 2004
Posted: 31 Mar 2013
Date Written: December 1, 2004
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 US states to perform the test. The empirical results provide some support for the PIH across states.
Keywords: Permanent income, Consumption, US states
JEL Classification: E21
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