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Permanent Income Hypothesis, Myopia and Liquidity Constraints: A Case Study of Pakistan

Author

Listed:
  • Khalid Khan
  • Hazrat Yousaf
  • Muhammed Ghazanfar Abbas
  • Manzoor H Memon ChE
  • Mohammed Nishat

Abstract

This paper is an attempt to test the Permanent Income Hypothesis (PIH), Myopia and Liquidity Constraints as a case study for Pakistan. The paper also attempts to find out valid reasoning incase the PIH is rejected. Hall‟s random walk model (1978) and Campbell and Mankiw model (1990) are used to test for the validity of PIH. The results reject the PIH and indicate the strong validity of Absolute Income Hypothesis (AIH) in Pakistan. Accordingly, Shea (1995) model is also used to validate the rejection of the PIH. The application of Shea (1995) model confirms the rejection; the symmetric relationship between consumption and expected income and provide a little evidence of existence of liquidity constraints

Suggested Citation

  • Khalid Khan & Hazrat Yousaf & Muhammed Ghazanfar Abbas & Manzoor H Memon ChE & Mohammed Nishat, 2012. "Permanent Income Hypothesis, Myopia and Liquidity Constraints: A Case Study of Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(1), pages 155-162.
    • Handle: RePEc:asi:aeafrj:v:2:y:2012:i:1:p:155-162:id:744
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    Cited by:

    1. Bokana K.G & Kabongo W.N.S, 2018. "Modelling Real Private Consumption Expenditure in South Africa to Test the Absolute Income Hypothesis," Journal of Economics and Behavioral Studies, AMH International, vol. 10(5), pages 138-155.

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