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Precautionary saving and the Deaton paradox

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  • Michel Normandin

Abstract

The Deaton paradox implies that the permanent income hypothesis (PIH) under certainty equivalence is rejected because observed consumption is excessively smooth. It is shown how several reasonable parametrization of the PIH under precautionary saving imply that consumption is smoother than labour income and that the relative smoothness matches that found in the data.

Suggested Citation

  • Michel Normandin, 1997. "Precautionary saving and the Deaton paradox," Applied Economics Letters, Taylor & Francis Journals, vol. 4(3), pages 187-190.
    • Handle: RePEc:taf:apeclt:v:4:y:1997:i:3:p:187-190
    DOI: 10.1080/135048597355483
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    Cited by:

    1. Luis A. Gil-Alana & Antonio Moreno & Seonghoon Cho, 2012. "The Deaton paradox in a long memory context with structural breaks," Applied Economics, Taylor & Francis Journals, vol. 44(25), pages 3309-3322, September.
    2. Siegmann, Arjen, 2002. "Optimal saving rules for loss-averse agents under uncertainty," Economics Letters, Elsevier, vol. 77(1), pages 27-34, September.

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