The Excess of Consumption Growth

Myung Hoon Yi
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Myung Hoon Yi: Myongji University

Korean Economic Review, 1996, vol. 12, issue 1, 25-53

Abstract: Recent empirical research often rejects the time-additive expected utility setting of the permanent income hypothesis. This rejection may be due to either the failure of the permanent income hypothesis or the misspecification of the underlying pre: erences. This paper investigates whether the departure .from the time-additive expec-ted utility speccation can explain some consumption puzzle as a result of consum-ers' optimizing behavior, and examines the empirical validity of this argument. We find that empirical explanation of the excess of consumption growth puzzle by the general recursive utility framework is somewhat better than the time-additive expec-ted utility framework. However, the test results indicate that the overall test of the model is rejected, as is the time-additive expected utility specification.

Date: 1996
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