A Simple Test of Friedman's Permanent Income Hypothesis

20 Pages Posted: 8 May 2006

See all articles by Joseph P. DeJuan

Joseph P. DeJuan

University of Waterloo - Department of Economics

John J. Seater

Economics Dept., Boston College

Abstract

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.

Suggested Citation

DeJuan, Joseph P. and Seater, John J., A Simple Test of Friedman's Permanent Income Hypothesis. Economica, Vol. 73, No. 289, pp. 27-46, February 2006, Available at SSRN: https://ssrn.com/abstract=877954 or http://dx.doi.org/10.1111/j.1468-0335.2006.00446.x

Joseph P. DeJuan (Contact Author)

University of Waterloo - Department of Economics ( email )

Waterloo, Ontario N2L 3G1
Canada

John J. Seater

Economics Dept., Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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