New Result in Theory of Consumption: Changes in Savings and Income Growth

Cheng Wu ()

Macroeconomics from EconWPA

Abstract: Hall (1978) theorized that future consumption could be written only as a function of its current consumption. Since this result is known to be wrong in data, we reexamine, from Flavin's original equations (1981), how they may have reached this conclusion. In the Appendix, we derive a generic permanent income equation and discuss Flavin's imprecision. Furthermore, by replacing one of Flavin's three basic equations and adding the definition of savings, we find that changes in savings should also be a function of labor income growth, a solution anticipated by Modigliani and Brumberg (1952, published 1979).

Keywords: consumption; growth; saving; income (search for similar items in EconPapers)
JEL-codes: E2 D5 E6 G1 (search for similar items in EconPapers)
Date: Written 1997-06-23
Note: Type of Document - Word Perfect 6.0 DOS; prepared on IBM PC; to print on HP Laserjet 4; pages: 13 . In case you need, I have Flavin's two comments
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