Can portfolio adjustments explain deviations of consumption from permanent income? An empirical study of UK data

MacDonald, R. and Molana, H. (2004) Can portfolio adjustments explain deviations of consumption from permanent income? An empirical study of UK data. North American Journal of Economics and Finance, 15(3), pp. 313-331. (doi:10.1016/j.najef.2004.10.001)

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Publisher's URL: http://dx.doi.org/10.1016/j.najef.2004.10.001

Abstract

It has become something of a stylized fact that the change in consumer spending exhibits persistence. This is often interpreted as indicating a violation of the rational expectations-permanent income (RE-PI) hypothesis. This paper considers an alternative interpretation: the observed persistence could be due to portfolio adjustments which push consumption away from its RE-PI path. Empirical support for this interpretation is provided using a UK data set.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:MacDonald, Professor Ronald and Molana, Prof Hassan
Authors: MacDonald, R., and Molana, H.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:North American Journal of Economics and Finance
Journal Abbr.:N. Am. J. Econ. Finance
ISSN:1062-9408
Published Online:25 November 2004

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