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

Ronald MacDonald, Hassan Molana

    Research output: Contribution to journalArticle

    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

    Fingerprint

    Empirical study
    Deviation
    Permanent income
    Persistence
    Rational expectations
    Consumer spending
    Permanent income hypothesis
    Violations
    Stylized facts

    Keywords

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

    Cite this

    @article{82ff96b7cd484d34aecd6fdf2d492ac3,
    title = "Can portfolio adjustments explain deviations of consumption from permanent income?: an empirical study of UK data",
    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.",
    keywords = "Permanent income, Wealth allocation, Portfolio adjustment, Cointegration, Error correction",
    author = "Ronald MacDonald and Hassan Molana",
    note = "dc.publisher: Elsevier",
    year = "2004",
    doi = "10.1016/j.najef.2004.10.001",
    language = "English",
    volume = "15",
    pages = "313--331",
    journal = "North American Journal of Economics and Finance",
    issn = "1062-9408",
    publisher = "Elsevier",
    number = "3",

    }

    TY - JOUR

    T1 - Can portfolio adjustments explain deviations of consumption from permanent income?: an empirical study of UK data

    AU - MacDonald, Ronald

    AU - Molana, Hassan

    N1 - dc.publisher: Elsevier

    PY - 2004

    Y1 - 2004

    N2 - 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.

    AB - 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.

    KW - Permanent income

    KW - Wealth allocation

    KW - Portfolio adjustment

    KW - Cointegration

    KW - Error correction

    U2 - 10.1016/j.najef.2004.10.001

    DO - 10.1016/j.najef.2004.10.001

    M3 - Article

    VL - 15

    SP - 313

    EP - 331

    JO - North American Journal of Economics and Finance

    JF - North American Journal of Economics and Finance

    SN - 1062-9408

    IS - 3

    ER -