Superior Information, Income Shocks, And The Permanent Income Hypothesis

Luigi Pistaferri

The Review of Economics and Statistics, 2001, vol. 83, issue 3, 465-476

Abstract: According to the permanent income hypothesis with quadratic preferences, households save for a rainy day the transitory component of income innovations and consume entirely the permanent one. The model also rules out precautionary saving. Typically, income shock components are not separately observable, and information on the conditional variance of income is hard to come by. We show how to combine income realizations with subjective expectations to identify separately the transitory and the permanent shock to income and to obtain a measure of idiosyncratic uncertainty, thus providing a powerful test of the theory in short panels. The empirical analysis is performed on a sample of Italian households drawn from the 1989-1991 Survey of Household Income and Wealth. © 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

Date: 2001
References: Add references at CitEc
Citations: View citations in EconPapers (91)

Downloads: (external link)
http://www.mitpressjournals.org/doi/pdf/10.1162/00346530152480117 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Superior Information, Income Shocks and the Permanent Income Hypothesis (1998)
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:tpr:restat:v:83:y:2001:i:3:p:465-476

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by The MIT Press ().