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Permanent Income, Current Income, and Consumption

John Campbell () and N. Gregory Mankiw ()

Scholarly Articles from Harvard University Department of Economics

Abstract: This article reexamines the consistency of the permanent-income hypothesis with aggregate postwar U.S. data. The permanent-income hypothesis is nested within a more general model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be about 50%, indicating a substantial departure from the permanent-income hypothesis. Our results cannot be easily explained by time aggregation or small-sample bias, by changes in the real interest rate, or by nonseparabilities in the utility function of consumers.

Date: 1990
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Published in Journal of Business and Economic Statistics

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Related works:
Journal Article: Permanent Income, Current Income, and Consumption (1990)
Working Paper: Permanent Income, Current Income, and Consumption (1987) Downloads
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