The Adjustment of Consumption to Changing Expectations About Future Income

@article{Flavin1981TheAO,
  title={The Adjustment of Consumption to Changing Expectations About Future Income},
  author={Marjorie Flavin},
  journal={Journal of Political Economy},
  year={1981},
  volume={89},
  pages={974 - 1009}
}
The paper analyzes the role of current income in providing new information about future income and thus signalling changes in permanent income. Using time-series analysis to quantify the revision in permanent income induced by an innovation in the current income process, a structural econometric model of consumption is developed. The rejection of the joint rational expectations-permanent income hypothesis is both statistically and quantitatively significant. The paper also shows that the test… Expand
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