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Three Alternative Approaches to Test the Permanent Income Hypothesis in Dynamic Panels

Author

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  • Laura Serlenga

    (University of Bari)

Abstract

In this paper we consider three alternative approaches to test the Permanent Income Hypothesis (PIH) in the context of dynamic panels: the aggregate consumption approach, the Euler equation approach and finally Friedman (1957)'s original characteristic tests. Our empirical evidence, using the British Household Panel Survey (BHPS) data, strongly supports the PIH. This analysis can, thus, be considered as supporting the view that empirical tests of PIH, based on aggregate time-series data, might suffer from misspecification or overlook some fundamental characteristics of micro data.

Suggested Citation

  • Laura Serlenga, 2002. "Three Alternative Approaches to Test the Permanent Income Hypothesis in Dynamic Panels," SERIES 0005, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised Feb 2002.
    • Handle: RePEc:bai:series:economia-series5
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    References listed on IDEAS

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    More about this item

    Keywords

    Permanent Income Hypothesis; British Household Panel Survey;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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