Consumption, Saving and Rational Expectations: Some Further Evidence for the U.K

Ronald MacDonald and Alan E H Speight

Economic Journal, 1989, vol. 99, issue 394, 83-91

Abstract: This paper examines implications of the rational expectations-permanent income framework for (quasi-) savings using U.K. data. The residual from a cointegrating regression between income and consumption provides the (quasi-) savings series that is used in conjunction with differenced income in a bivariate vector autoregression, with associated restrictions and exclusion tests. A further implication is that savings should Granger-cause labor income changes. Incomes and consumption are found to be cointegrated in levels as a robust result, and the bivariate system performs well. However, savings Granger-cause labor income changes with a perverse positive sign and exclusion restrictions fail. Copyright 1989 by Royal Economic Society.

Date: 1989
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