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.
|Number of pages||19|
|Journal||North American Journal of Economics and Finance|
|Publication status||Published - 2004|
- Permanent income
- Wealth allocation
- Portfolio adjustment
- Error correction