Testing the permanent income hypothesis in the developing and developed countries: A comparison between Fiji and Australia

B. Rao and Kanhaiya Lal Sharma

MPRA Paper from University Library of Munich, Germany

Abstract: Hall (1978) has stimulated considerable controversy and empirical work on testing the permanent income hypothesis (PIH). Much of the empirical work is on the developed countries where opportunities for inter-temporal substitution are generally higher than in the developing countries. Therefore, it is expected that PIH would be valid for only a smaller proportion of consumers in the developing countries. This paper uses the extended framework of Campbell and Mankiw (1989) to estimate the proportion of consumers for whom PIH is valid in Fiji and Australia. Our results show that PIH consumers are about 40\% higher in Australia than in Fiji.

Keywords: Consumption function; Developing countries; Permanent income hypothesis; Hall’s random walk hypothesis; Campbell-Mankiw tests (search for similar items in EconPapers)
JEL-codes: E20 E21 E29 (search for similar items in EconPapers)
Date: 2007-04-14
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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