Is Aggregate Consumer Borrowing Consistent with the Permanent Income Hypothesis?

Sangkyun Park and Anthony P. Rodrigues

Manchester School, 2000, vol. 68, issue 3, 301-320

Abstract: Using US data covering from 1959 to 1994, we examine the consistency of aggregate consumer borrowing with the permanent income/life‐cycle hypothesis (PI/LCH) and the predictive power of consumer borrowing. The PI/LCH implies that consumer borrowing should be an increasing function of the gap between permanent and current income. In addition, if consumers accurately estimate permanent income, large borrowing should be associated with rapid income growth in the future. Our empirical results support the PI/LCH; consumer borrowing increases with the estimate of permanent income and decreases with current income. The predictive power of consumer borrowing, however, is marginal; lagged consumer borrowing explains only a small portion of income growth and does not Granger‐cause income growth.

Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1111/1467-9957.00195

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:manchs:v:68:y:2000:i:3:p:301-320

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1463-6786

Access Statistics for this article

Manchester School is currently edited by Keith Blackburn

More articles in Manchester School from University of Manchester Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().