Testing the Stochastic Implications of the Permanent Income Hypothesis Using Canadian Provincial Data

20 Pages Posted: 21 Dec 2009

See all articles by Joseph P. DeJuan

Joseph P. DeJuan

University of Waterloo - Department of Economics

John J. Seater

Economics Dept., Boston College

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: 0000

Abstract

This paper utilizes relatively unexplored Canadian provincial-level data to investigate an old but still relevant question in macroeconomics as to whether consumption responds to income innovations in a manner consistent with the stochastic implications of the permanent income hypothesis (PIH). The empirical results obtained do not appear to be in accord with the PIH. Instead, consumption's response to income innovations is found to be much weaker than that predicted by PIH; in particular, the response displays an asymmetric pattern in the sense that it is much stronger for negative than positive income innovations. We interpret this evidence of asymmetry as indicative of the presence of liquidity constraints in provincial households.

Suggested Citation

DeJuan, Joseph P. and Seater, John J. and Wirjanto, Tony S., Testing the Stochastic Implications of the Permanent Income Hypothesis Using Canadian Provincial Data (0000). Oxford Bulletin of Economics and Statistics, Vol. 72, Issue 1, pp. 89-108, February 2010, Available at SSRN: https://ssrn.com/abstract=1524527 or http://dx.doi.org/10.1111/j.1468-0084.2009.00565.x

Joseph P. DeJuan (Contact Author)

University of Waterloo - Department of Economics ( email )

Waterloo, Ontario N2L 3G1
Canada

John J. Seater

Economics Dept., Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

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