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TESTING THE PREDICTABILITY OF CONSUMPTION GROWTH: EVIDENCE FROM CHINA

Liping Gao And Hyeongwoo Kim ()
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Liping Gao And Hyeongwoo Kim: Georgia Southern University, and Auburn University

Authors registered in the RePEc Author Service: Liping Gao () and Hyeongwoo Kim ()

Journal of Economic Development, 2016, vol. 41, issue 3, 21-30

Abstract: Using time series macroeconomic data, Chow (1985, 2010, 2011) reported indirect empirical evidence that implies the validity of the permanent income hypothesis in China. We revisit this issue by evaluating direct measures of the predictability of consumption growth in China during the post-economic reform regime (1978-2009). We also implement and report similar analysis for the postwar U.S. data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises show that consumption changes are highly predictable, which sharply contrasts the implications of empirical findings by Chow (1985, 2010, 2011).

Keywords: Permanent Income Hypothesis; Consumption; Out-of-Sample Forecast; Diebold-Mariano-West Statistic (search for similar items in EconPapers)
JEL-codes: E21 E27 (search for similar items in EconPapers)
Date: 2016
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Related works:
Working Paper: Testing the Predictability of Consumption Growth: Evidence from China (2016) Downloads
Working Paper: Testing the Predictability of Consumption Growth: Evidence from China (2015) Downloads
Working Paper: Testing the Predictability of Consumption Growth: Evidence from China (2014) Downloads
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