Precautionary saving and the Deaton paradox

Michel Normandin ()

Applied Economics Letters, 1997, vol. 4, issue 3, 187-190

Abstract: The Deaton paradox implies that the permanent income hypothesis (PIH) under certainty equivalence is rejected because observed consumption is excessively smooth. It is shown how several reasonable parametrization of the PIH under precautionary saving imply that consumption is smoother than labour income and that the relative smoothness matches that found in the data.

Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:4:y:1997:i:3:p:187-190

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DOI: 10.1080/135048597355483

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