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

Ronald MacDonald; Hassan Molana

doi:10.1016/j.najef.2004.10.001

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

Ronald MacDonald
, Hassan Molana

Research output: Contribution to journal › Article › peer-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 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	https://doi.org/10.1016/j.najef.2004.10.001
Publication status	Published - 2004

Keywords

Permanent income
Wealth allocation
Portfolio adjustment
Cointegration
Error correction

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10.1016/j.najef.2004.10.001

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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",

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AU - Molana, Hassan

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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

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DO - 10.1016/j.najef.2004.10.001

M3 - Article

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EP - 331

JO - North American Journal of Economics and Finance

JF - North American Journal of Economics and Finance

IS - 3

ER -

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

Abstract

Keywords

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