Testing the Assumptions of the Permanent-Income Model
- 1 March 1980
- journal article
- research article
- Published by JSTOR in Journal of the American Statistical Association
- Vol. 75 (369) , 32
- https://doi.org/10.2307/2287375
Abstract
Within the errors-in-variables framework, a model of consumer behavior that includes permanent and transitory income is estimated from the 1952 Oxford Savings Survey data and used to test the assumptions of the permanent-income hypothesis. The analysis is extended to the case in which the variables determining permanent income and the case in which the variables determining transitory income are measured with error. In the former case, the tests of the permanent-income model remain valid, but in the latter case errors in measurement lead to a reduction in the estimate of the marginal propensity to consume out of transitory income.Keywords
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