Testing the Permanent Income Hypothesis with Classification Methods

44 Pages Posted: 16 Feb 2001

See all articles by Joseph P. DeJuan

Joseph P. DeJuan

University of Waterloo - Department of Economics

John J. Seater

Economics Dept., Boston College

Date Written: October 2000

Abstract

We use modern cross-sectional data and methods to conduct Friedman's (1957) classification tests of the Permanent Income Hypothesis. Our data are much superior to those available to Friedman and allow us to perform tests Friedman could not do. Some of our tests also benefit from econometric advances since Friedman published. The tests use different identifying restrictions than either Euler equation or consumption function tests, thus complementing those tests and adding considerable robustness to tests of the PIH. The results provide overall but not universal support for the PIH.

Keywords: Classification Methods, Instrumental Variables, Permanent Income Hypothesis, Cross-Section Data

JEL Classification: E21

Suggested Citation

DeJuan, Joseph P. and Seater, John J., Testing the Permanent Income Hypothesis with Classification Methods (October 2000). Available at SSRN: https://ssrn.com/abstract=260111 or http://dx.doi.org/10.2139/ssrn.260111

Joseph P. DeJuan

University of Waterloo - Department of Economics ( email )

Waterloo, Ontario N2L 3G1
Canada

John J. Seater (Contact Author)

Economics Dept., Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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