Revisiting the Empirical Inconsistency of the Permanent Income Hypothesis: Evidence from Rural China
Liping(Sophia) Gao,
Hyeongwoo Kim () and
Yaoqi Zhang
No auwp2013-05, Auburn Economics Working Paper Series from Department of Economics, Auburn University
Abstract:
Chow (1985) reports strong evidence in favor of the permanent income hypothesis (PIH) using observations from 1953 to 1982 in China. We revisit this issue with rural area household data in China during the post economic reform regime (1978-2009) as well as the postwar US data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises also reveal that consumption changes are highly predictable. Our vector autoregressive (VAR) model analysis also shows significantly positive responses of consumption to income shocks, and non-negligible proportions of variations in consumption are explained by innovations in income.
Keywords: Permanent Income Hypothesis; Consumption; Generalized Method of Moments; Diebold-Mariano-West Statistic; Vector Autoregressive (search for similar items in EconPapers)
JEL-codes: E21 E27 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-dev, nep-for and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)
Downloads: (external link)
https://cla.auburn.edu/econwp/Archives/2013/2013-05.pdf (application/pdf)
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:abn:wpaper:auwp2013-05
Access Statistics for this paper
More papers in Auburn Economics Working Paper Series from Department of Economics, Auburn University Contact information at EDIRC.
Bibliographic data for series maintained by Hyeongwoo Kim ().