Permanent Income,Current Income,and Consumption |
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Authors: | John Y Campbell N Gregory Mankiw |
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Institution: | 1. Woodrow Wilson School, Princeton University , Princeton , NJ , 08544;2. Department of Economics , Harvard University , Cambridge , MA , 02138 |
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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. |
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Keywords: | Euler equation Instrumental variables Monte Carlo study Nonseparable utility Real interest rate Time aggregation |
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