IDEAS home Printed from https://ideas.repec.org/a/spr/empeco/v68y2025i1d10.1007_s00181-024-02642-8.html
   My bibliography  Save this article

A new investigation into whether households are excessively sensitive to predictable changes in income

Author

Listed:
  • Charles Grant

    (Brunel University)

Abstract

Several tests of the permanent income hypothesis have examined whether predictable changes in income affect current consumption growth. The predictable income change is constructed using past variables as instruments in a two-stage regression. However, finding instruments that are truly exogenous but nevertheless predict income growth is very difficult. Moreover, identification requires a large number of time periods. This paper, using the CEX, shows that previous studies have given insufficient attention to properly testing the instruments. Using a longer number of time periods, and a valid set of instruments, the paper finds that households are indeed excessively sensitive to predictable changes in income.

Suggested Citation

  • Charles Grant, 2025. "A new investigation into whether households are excessively sensitive to predictable changes in income," Empirical Economics, Springer, vol. 68(1), pages 237-252, January.
  • Handle: RePEc:spr:empeco:v:68:y:2025:i:1:d:10.1007_s00181-024-02642-8
    DOI: 10.1007/s00181-024-02642-8
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s00181-024-02642-8
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s00181-024-02642-8?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Consumption; Excess sensitivity; Testing Instruments;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:empeco:v:68:y:2025:i:1:d:10.1007_s00181-024-02642-8. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.