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Journal Article

Permanent Income, Current Income, and Consumption

John Y. Campbell and N. Gregory Mankiw
Journal of Business & Economic Statistics
Vol. 8, No. 3 (Jul., 1990), pp. 265-279
DOI: 10.2307/1391964
Stable URL: http://www.jstor.org/stable/1391964
Page Count: 15
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Permanent Income, Current Income, and Consumption
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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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