The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data

63 Pages Posted: 16 Jul 2004 Last revised: 28 Jul 2010

See all articles by Fumio Hayashi

Fumio Hayashi

National Graduate Institute for Policy Studies; Harvard University - Department of Economics

Date Written: March 1984

Abstract

The permanent income hypothesis is tested on a four-quarter panel of about two thousand Japanese households for ten commodity groups. Consumption is a distributed lag function of expenditures, and the utility function is additively separable in time. Durability is defined as the persistence of the distributed lag. The permanent income hypothesis implies that, for each commodity group, expected change in expenditures is correlated neither with past expenditure changes on other commodities nor with expected change indisposable income, if its own lags are controlled for. The main results are the following: (1) durability is substantial even for food and services, (2)the permanent income hypothesis applies to almost all (probably more than ninety percent) of the population, and (3) the habit persistence hypothesis is rejected in favor of the permanent income hypothesis.

Suggested Citation

Hayashi, Fumio, The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data (March 1984). NBER Working Paper No. w1305. Available at SSRN: https://ssrn.com/abstract=321343

Fumio Hayashi (Contact Author)

National Graduate Institute for Policy Studies ( email )

Roppongi 7-22-1
Minato-ku
Tokyo, 106-0032
Japan

HOME PAGE: http://https://sites.google.com/site/fumiohayashi/home

Harvard University - Department of Economics

Littauer Center
Cambridge, MA 02138
United States

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