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Permanent Income, Current Income, and Consumption

John Campbell () and N. Gregory Mankiw ()

Journal of Business & Economic Statistics, 1990, vol. 8, issue 3, 265-79

Abstract: This article reexamines the consistency of the permanent-income hypothesis with aggregate postwar U.S. data. The permanent-income hypothesis is nested within a more general model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be about 50 percent, indicating a substantial departure from the permanent-income hypothesis. Our results cannot be easily explained by time aggregation for small-sample bias, by managers in the real interest rate, or by nonseparabilities in the utility function of consumers.

Date: 1990
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Working Paper: Permanent Income, Current Income, and Consumption (1987) Downloads
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