Does consumption deviate from the permanent income path? An empirical study of UK data

R. MacDonald, H. Molana

    Research output: Working paperDiscussion paper

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    Abstract

    It has become something of a stylised 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, namely that such persistence reflects portfolio disturbances from the financial sector which temporarily push consumption away from its RE-PI path. Empirical support for this interpretation is provided using a UK data set.
    Original languageEnglish
    PublisherUniversity of Dundee
    Publication statusPublished - 2000

    Publication series

    NameDundee Discussion Papers in Economics
    PublisherUniversity of Dundee
    No.107
    ISSN (Print)1473-236X

    Keywords

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

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  • Cite this

    MacDonald, R., & Molana, H. (2000). Does consumption deviate from the permanent income path? An empirical study of UK data. (Dundee Discussion Papers in Economics; No. 107). University of Dundee.