Working Paper: NBER ID: w1038
Authors: Ben Bernanke
Abstract: Previous tests of the permanent income hypothesis (PIH) have focused on either nondurables or durables expenditures in isolation. This paper studies consumer purchases of nondurables and durables as the outcome of a single optimization problem.It is shown that the presence of adjustment costs of changing durables stocks may substantially affect the time series properties of both components of expenditure under the PIH.However, econometric tests based on this model do not contradict earlier rejections of the PIH in aggregate quarterly data.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| adjustment costs (J30) | consumption patterns (D10) |
| adjustment costs (J30) | durables expenditures (E20) |
| adjustment costs (J30) | nondurables expenditures (H59) |
| adjustment costs (J30) | rejection of PIH (H53) |
| consumption patterns (D10) | rejection of PIH (H53) |