Can portfolio adjustments explain deviations of consumption from permanent income?: an empirical study of UK data

Ronald MacDonald, Hassan Molana

    Research output: Contribution to journalArticlepeer-review

    1 Citation (Scopus)

    Abstract

    It has become something of a stylized fact that the change in consumer spending exhibits persistence. This is often interpreted as indicating a violation of the rational expectations-permanent income (RE-PI) hypothesis. This paper considers an alternative interpretation: the observed persistence could be due to portfolio adjustments which push consumption away from its RE-PI path. Empirical support for this interpretation is provided using a UK data set.
    Original languageEnglish
    Pages (from-to)313-331
    Number of pages19
    JournalNorth American Journal of Economics and Finance
    Volume15
    Issue number3
    DOIs
    Publication statusPublished - 2004

    Keywords

    • Permanent income
    • Wealth allocation
    • Portfolio adjustment
    • Cointegration
    • Error correction

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