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Milton Friedman and the Emergence of the Permanent Income Hypothesis

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  • Hsiang-Ke Chao

    (University of Amsterdam)

Abstract

The purpose of this paper is to investigate the evolution of MiltonFriedman's permanent income hypothesis from the 1940s to 1960s, andhow it became the paradigm of modern consumption theory. Modellingunobservables, such as permanent income and permanent consumption, isa long-standing issue in economics and econometrics. While theconventional approach has been to set an empirical model to make"permanent income" measurable, the historical change in the meaningof that theoretical construct is also of methodological interest.This paper will show that the concepts of unobservables, especiallypermanent income, in Friedman's work was fluid and depended on theinstruments used.

Suggested Citation

  • Hsiang-Ke Chao, 2001. "Milton Friedman and the Emergence of the Permanent Income Hypothesis," Tinbergen Institute Discussion Papers 01-053/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20010053
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    References listed on IDEAS

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    1. Marc Nerlove, 1958. "Distributed lags and Estimation of Long-Run Supply and Demand Elasticities: Theoretical Considerations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 40(2), pages 301-310.
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    4. Marcel Boumans, 2016. "Econometrics," Chapters, in: Gilbert Faccarello & Heinz D. Kurz (ed.), Handbook on the History of Economic Analysis Volume III, chapter 9, pages 106-116, Edward Elgar Publishing.
    5. Roger C. Bird & Ronald G. Bodkin, 1965. "The National Service Life-Insurance Dividend of 1950 and Consumption: A Further Test of the "Strict" Permanent-Income Hypothesis," Journal of Political Economy, University of Chicago Press, vol. 73(5), pages 499-499.
    6. Hynes, J. Allan, 1998. "The Emergence of the Neoclassical Consumption Function: The Formative Years, 1940–1952," Journal of the History of Economic Thought, Cambridge University Press, vol. 20(1), pages 25-49, March.
    7. Spanos,Aris, 1986. "Statistical Foundations of Econometric Modelling," Cambridge Books, Cambridge University Press, number 9780521269124, January.
    8. Milton Friedman & Simon Kuznets, 1945. "Income from Independent Professional Practice," NBER Books, National Bureau of Economic Research, Inc, number frie54-1, December.
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    Cited by:

    1. Aeggarchat Sirisankanan, 2023. "Natural circumstances and farm labor supply adjustment: the response of the farm labor supply to permanent and transitory natural events," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(9), pages 9935-9961, September.

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