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

Rao, B. Bhaskara and Sharma, Kanhaiya Lal (2007): Testing the permanent income hypothesis in the developing and developed countries: A comparison between Fiji and Australia.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Consumption function; Developing countries; Permanent income hypothesis; Hall’s random walk hypothesis; Campbell-Mankiw tests
• Subjects: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E20 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E29 - Other