A Direct Test of the Permanent Income Hypothesis with an Application to the US States

Joseph DeJuan (), John Seater () and Tony Wirjanto ()

No 3001, Working Papers from University of Waterloo, Department of Economics

Abstract: This paper tests the prediction of the Permanent Income Hypothesis (PIH) that news about future income induce a revision in consumption equal to the revision in permanent income. We use time-series data from 48 contiguous US states to perform the test. The empirical results provide some support for the PIH across states.

Date: 2003-01, Revised 2003-01
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