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Testing The Predictability Of Consumption Growth: Evidence From China

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  • LIPING GAO AND HYEONGWOO KIM

    (Georgia Southern University, and Auburn University)

Abstract

Using time series macroeconomic data, Chow (1985, 2010, 2011) reported indirect empirical evidence that implies the validity of the permanent income hypothesis in China. We revisit this issue by evaluating direct measures of the predictability of consumption growth in China during the post-economic reform regime (1978-2009). We also implement and report similar analysis for the postwar U.S. data for comparison. Our in-sample analysis provides strong evidence against the PIH for both countries. Out-of-sample forecast exercises show that consumption changes are highly predictable, which sharply contrasts the implications of empirical findings by Chow (1985, 2010, 2011).

Suggested Citation

  • Liping Gao And Hyeongwoo Kim, 2016. "Testing The Predictability Of Consumption Growth: Evidence From China," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 41(3), pages 21-30, September.
    • Handle: RePEc:jed:journl:v:41:y:2016:i:3:p:21-30
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    More about this item

    Keywords

    Permanent Income Hypothesis; Consumption; Out-of-Sample Forecast; Diebold-Mariano-West Statistic;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications

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