Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence

  title={Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence},
  author={Robert Ernest Hall},
  journal={Journal of Political Economy},
  pages={971 - 987}
  • R. Hall
  • Published 1 December 1978
  • Economics
  • Journal of Political Economy
Optimization of the part of consumers is shown to imply that the marginal utility of consumption evolves according to a random walk with trend. To a reasonable approximation, consumption itself should evolve in the same way. In particular, no variable apart from current consumption should be of any value in predicting future consumption. This implication is tested with time-series data for the postwar United States. It is confirmed for real disposable income, which has no predictive power for… 
Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Evidence for the U.K. Economy
where Et is white noise. Hall's stated purpose in deriving this equation was to provide a testable implication of the pure life cycle-permanent income hypothesis which avoided the econometric
The life-cycle-permanent-income model: a reinterpretation and evidence
It is generally agreed that the consumption path implied by the standard stochastic life-cycle version of the permanent-income model is a random walk. The failure of the latter to conform to data,
The Life-Cycle-Permanent-Income Model: A Reinterpretation and Supporting Evidence
The consumption path associated with the life-cycle-optimising version of the permanent- income model is commonly agreed to be a random walk with drift. The persisting failure of the latter to
The Stochastic Implications of Permanent Income Hypothesis for US Speculative Traders: Implications for Consumption-Based Asset Pricing
This paper examines the stochastic implications of permanent income hypothesis for speculative prices from a sample of economic data from 1967 to 2017 in the United States. One of the standard
Testing the stochastic implications of the life cycle-permanent income hypothesis using UK regional time-series data
This paper applies exclusion tests of the pure life cycle—permanent income hypothesis (LCPIH) to time-series data on each of the eleven standard regions of the UK. Data are annual and extend from
Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption
  • J. Miron
  • Economics
    Journal of Political Economy
  • 1986
This paper examines a new possible explanation for the recent rejections of the life cycle-permanent income model of consumption: the treatment of seasonal fluctuations. The paper shows that when the
Consumption Over the Life Cycle: A Selected Literature Review
Simple life cycle and permanent income hypotheses imply that changes in consumption should be unforecastable. Rational forward-looking agents ought to smooth consumption over the life cycle and
Surprises in the Consumption Function, Incomplete Current Information, and Moving Average Errors: A Note [Stochastic Implications of the Life Cycle Permanent Income Hypothesis: Theory and Evidence]
In an important paper Hall (I978) demonstrated that the joint assumptions of the life cycle hypothesis, rational expectations and the constancy of the real rate of interest give rise to the startling


Theory of the Consumption Function
What is the exact nature of the consumption function? Can this term be defined so that it will be consistent with empirical evidence and a valid instrument in the hands of future economic researchers
Monetary Policy and Consumption
The purpose of the present paper is to examine the implications of the Federal Reserve-MIT-Penn Model (hereafter referred to as the FMP model) with respect to the central question with which this
Illiquidity, Consumer Durable Expenditure, and Monetary Policy
In the literature on consumer durable expenditure, monetary policy has a major impact either through interest rate or liquid asset (real balance) effects. The theoretical justification for the
A Statistical Illusion in Judging Keynesian Models
K EYNESIAN models have been used extensively in recent decades to predict and interpret movements in income. In its simplest form a Keynesian model contains one key relation, a consumption function
Efficient Capital Markets: A Review of Theory and Empirical Work Author(s): Eugene F. Fama Source: The Journal of Finance, Vol. 25, No. 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting
Forecasting transformed series
Suppose that a forecasting model is available for the process Xt but that interest centres on the instantaneous transformation Yt = T(Xt). On the assumption that Xt is Gaussian and stationary, or can