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THE AGGREGATE PERMANENT INCOME CONSUMPTION FUNCTION

James M. Boughton

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Abstract

This paper presents new evidence on the aggregate (timeseries) variant of the permanent income hypothesis. Using flexible-lag procedures, estimates are derived that suggest that permanent income depends largely upon recent income receipts, thus calling into question a central assumption of the original Friedman theory. The results of the study also raise doubts about the empirical validity of other elements of the aggregate variant of the permanent income theory.

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What this paper is about

This paper presents new evidence on the aggregate (timeseries) variant of the permanent income hypothesis. Using flexible-lag procedures, estimates are derived that suggest that permanent income depends largely upon recent income receipts, thus calling into question a central assumption of the original Friedman theory. The results of the study also raise doubts about the empirical validity of other elements of the aggregate variant of the permanent income theory.

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Available abstract

This paper presents new evidence on the aggregate (timeseries) variant of the permanent income hypothesis. Using flexible-lag procedures, estimates are derived that suggest that permanent income depends largely upon recent income receipts, thus calling into question a central assumption of the original Friedman theory. The results of the study also raise doubts about the empirical validity of other elements of the aggregate variant of the permanent income theory.

Key concepts: Permanent income hypothesis, Economics, Aggregate behavior, Consumption function, Aggregate (composite), Econometrics, Consumption (sociology), Aggregate income

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