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 language | English |
---|---|
Pages (from-to) | 313-331 |
Number of pages | 19 |
Journal | North American Journal of Economics and Finance |
Volume | 15 |
Issue number | 3 |
DOIs | |
Publication status | Published - 2004 |
Keywords
- Permanent income
- Wealth allocation
- Portfolio adjustment
- Cointegration
- Error correction