Permanent Income, Current Income, and Consumption

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Permanent Income, Current Income, and Consumption

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Title: Permanent Income, Current Income, and Consumption
Author: Campbell, John Y.; Mankiw, N. Gregory

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Citation: Campbell, John Y., and N. Gregory Mankiw. 1990. Permanent income, current income, and consumption. Journal of Business and Economic Statistics 8(3): 265-279.
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Abstract: This article reexamines the consistency of the permanent-income hypothesis with aggregate postwar U.S. data. The permanent-income hypothesis is nested within a more general model in which a fraction of income accrues to individuals who consume their current income rather than their permanent income. This fraction is estimated to be about 50%, indicating a substantial departure from the permanent-income hypothesis. Our results cannot be easily explained by time aggregation or small-sample bias, by changes in the real interest rate, or by nonseparabilities in the utility function of consumers.
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