Does Clower’s Dual-Decision Hypothesis lead to the change in saving conclusion in Keynes’s General Theory?

Wu, Cheng (2017): Does Clower’s Dual-Decision Hypothesis lead to the change in saving conclusion in Keynes’s General Theory?

Abstract

Keynes’ General Theory (1936) is probably the most challenging economics book ever written, with an abundance of hypotheses, concepts and theories. Twenty five years after its publication, Clower proposed an insightful explanation on Keynes, the Dual-Decision Hypothesis (DDH). Hall (1978) and Flavin (1981) seemingly reached the conclusion that, under certain conditions, consumption was independent of income. In contrast, Wu (2016) has shown that, change in saving has to be a function of income growth. In fact, applying Wu’s corrected consumption for period t+1, it is possible to show DDH equations leading to Keynes’ change in saving (and disequilibrium) conclusion.

• Item Type: MPRA Paper
• Language: English
• Keywords: consumption; martingale; savings; growth; income; trade; Clower; dual decision hypothesis; keynes
• Subjects: A - General Economics and Teaching > A1 - General Economics > A10 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook; F - International Economics > F0 - General; J - Labor and Demographic Economics > J0 - General; N - Economic History > N1 - Macroeconomics and Monetary Economics ; Industrial Structure ; Growth ; Fluctuations

References

Clower, R. W. (1965), "The Keynesian Counterrevolution: A Theoretical Appraisal," in The Theory of Interest Rates, ed. F.H. Hahn and F.P.R. Brechling, Macmillan, pp. 103-25.

Flavin, M. A. (1981), "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, vol. 89, no.5, pp. 974-1009. http://www.jstor.org/stable/1830816?seq=1#page_scan_tab_contents http://dx.doi.org/10.1086/261016

Friedman, M. (1957), A Theory of the Consumption Function, Princeton University Press.

Hall, R. E. (1978), "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, pp. 971-87, October 1978. https://doi.org/10.1086/260724

Keynes, J. M. (1936), The General Theory of Employment, Interest, and Money, Hartcourt Brace Jovanovich.

Modigliani, F. and Brumberg R. (1954), "Utility Analysis and the Consumption Function: An Interpretation of Cross-Section Data," in K. K. Kurihara, ed., Post-Keynesian Economics. Rutgers University Press.

Modigliani, F. and Brumberg R. (unpublished manuscript 1952, published 1979), "Utility Analysis and Aggregate Consumption Functions: An Attempt at Integration," in The Collected Papers of Franco Modigliani, ed. A. Abel, Vol. 2, MIT Press.

Wu, C. K. (2016), "New Result in Theory of Consumption: Changes in Savings and Income Growth - Nineteen Years Later," Journal of Economics Library, Vol. 3, No. 1, pp. 77-81, http://www.kspjournals.org/index.php/JEL/article/view/684. http://dx.doi.org/10.1453/jel.v3i1.684

Wu, C. K. (2017), “Economics and how Obama could have lost the 2016 election too”, Journal of Social and Administrative Sciences, Vol. 4 (3), September 2017, pp.283-288. http://www.kspjournals.org/index.php/JSAS/issue/view/95