Three Alternative Approaches to Test the Permanent Income Hypothesis in Dynamic Panels

Laura Serlenga ()

No 5, SERIES from Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro"

Abstract: In this paper we consider three alternative approaches to test the Permanent Income Hypothesis (PIH) in the context of dynamic panels: the aggregate consumption approach, the Euler equation approach and finally Friedman (1957)'s original characteristic tests. Our empirical evidence, using the British Household Panel Survey (BHPS) data, strongly supports the PIH. This analysis can, thus, be considered as supporting the view that empirical tests of PIH, based on aggregate time-series data, might suffer from misspecification or overlook some fundamental characteristics of micro data.

Keywords: Permanent Income Hypothesis; British Household Panel Survey (search for similar items in EconPapers)
JEL-codes: C13 C23 E21 (search for similar items in EconPapers)
Pages: 813
Date: 2002-02, Revised 2002-02
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