Testing the Permanent Income and Random Walk Hypotheses for Turkey

Faik Bilgili and Hayriye Hilal Ba l Ta
Additional contact information
Hayriye Hilal Ba l Ta: Faculty of Economics and Administrative Science, Erciyes University, 38039, Kayseri, Turkey

International Journal of Economics and Financial Issues, 2016, vol. 6, issue 4, 1371-1378

Abstract: There have been ongoing researches and debates on the dynamics of developing economies with structural changes within literature of economics since 1770s. Economics investigated some basic themes during mercantilism and physiocracy period and, however, shaped its scientific approaches together with related techniques of philosophy/mathematics/statistics through the models of Classical, Keynesian, Neo-classical, Neo-Keynesian and Monetarist. Among these approaches, permanent income hypothesis (PIH) and random walk hypothesis (RWH) have been searching/analyzing the alternative consumption functions with related possible significant parameters since 1930s. This paper, first observes different income-consumption relations through decomposing them by using auto-regressive (AR) process to test the validity of PIH, later, considers testing the RWH by decomposing permanent income into expected and unexpected parts throughout AR processes. Thereby, paper intends to explore, if exists, excessive smoothness and/or excessive sensitivity of consumption in Turkey by employing Turkish quarterly data for consumption and income, spanning from 1998:1 to 2012:1. Outcome of this paper indicates that consumption is found sensitive to changes in unexpected income as well as changes in expected income. Findings reveal overall that absolute income hypothesis is confirmed in Turkish economy.

Keywords: Consumption; Income Hypothesis; Auto-regressive Process; Excessive Sensitivity (search for similar items in EconPapers)
JEL-codes: C22 D12 E21 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.econjournals.com/index.php/ijefi/article/download/2939/pdf (application/pdf)
http://www.econjournals.com/index.php/ijefi/article/view/2939/pdf (text/html)

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:eco:journ1:2016-04-11

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().