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Testing the permanent income hypothesis in the developing and developed countries: A comparison between Fiji and Australia

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  • Rao, B. Bhaskara
  • Sharma, Kanhaiya Lal

Abstract

Hall (1978) has stimulated considerable controversy and empirical work on testing the permanent income hypothesis (PIH). Much of the empirical work is on the developed countries where opportunities for inter-temporal substitution are generally higher than in the developing countries. Therefore, it is expected that PIH would be valid for only a smaller proportion of consumers in the developing countries. This paper uses the extended framework of Campbell and Mankiw (1989) to estimate the proportion of consumers for whom PIH is valid in Fiji and Australia. Our results show that PIH consumers are about 40\% higher in Australia than in Fiji.

Suggested Citation

  • Rao, B. Bhaskara & Sharma, Kanhaiya Lal, 2007. "Testing the permanent income hypothesis in the developing and developed countries: A comparison between Fiji and Australia," MPRA Paper 2725, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2725
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    References listed on IDEAS

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    5. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
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    Cited by:

    1. Nagayasu, Jun, 2012. "The threshold consumption correlation-based approach to international capital mobility: Evidence from advanced and developing countries," Structural Change and Economic Dynamics, Elsevier, vol. 23(3), pages 256-263.

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    More about this item

    Keywords

    Consumption function; Developing countries; Permanent income hypothesis; Hall’s random walk hypothesis; Campbell-Mankiw tests;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E29 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Other

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