Savings and rational expectations: a correction and further observations

MacDonald, R. and Speight, A.E.H. (1990) Savings and rational expectations: a correction and further observations. Economic Journal, 100(403), pp. 1277-1279.

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The aim of MacDonald and Speight (I989), hereafter MS, was to empirically implement and test the rational expectations - permanent income model, REPI, with appropriate stationary variables. The paper was in essentially two parts. The first part dealt with the cointegration of disposable income and two measures of real consumer expenditure, whilst the second part contained some restrictions tests from a BVAR model with quasi-savings and the change in labour income. A subsidiary finding of our modelling strategy was the result that savings positively Granger, caused the change in labour income. Attfield, Demery and Duck (i 990), hereafter ADD, question the numerical accuracy of our labour income series (attributing our finding of a positive relationship between savings and the change in labour income to this inaccuracy), the appropriate theoretical measure of labour income, and the efficiency of our tests of the REPI. As our response to these points indicates, ADD's comments do not undermine the central findings of our previous paper. Indeed the striking finding of our previous paper, that once allowance for transitory consumption is made the REPI restrictions cannot be rejected, is reinforced in our current note.

Item Type:Articles
Glasgow Author(s) Enlighten ID:MacDonald, Professor Ronald
Authors: MacDonald, R., and Speight, A.E.H.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Economic Journal
ISSN (Online):1468-0297

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