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The Adjustment of Consumption to Changing Expectations About Future Income
Abstract
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 of the rational expectations-permanent income hypothesis proposed by Hall is based on the reduced form of this structural model and reconciles Sargent's consumption paper with Hall's.
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Citations
Cited by
Campbell, J. Y., & Hentschel, L. (1992) · Journal of Financial Economics · doi:10.1016/0304-405x(92)90037-x · Cited by 1,926
Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots
Campbell, J. Y., & Perron, P. (1991) · NBER Macroeconomics Annual · doi:10.1086/654163 · Cited by 1,255
Anomalies: Saving, Fungibility, and Mental Accounts
Thaler, R. H. (1990) · Journal of Economic Perspectives · doi:10.1257/jep.4.1.193 · Cited by 957
The Consumption Response to Income Changes
Jappelli, T., & Pistaferri, L. (2010) · Annual Review of Economics · doi:10.1146/annurev.economics.050708.142933 · Cited by 704
Attanasio, O. P., & Weber, G. (1995) · Journal of Political Economy · doi:10.1086/601443 · Cited by 608
Metadata
- Authors
- Flavin, M. A.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 1981-10
- Volume
- 89
- Issue
- 5
- Pages
- 974-1009
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2035505185
- Cited by
- 1,322
- References
- 0
- FWCI
- 37.39
- Type
- journal article
- Language
- en
- Open access
- closed
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- CoChat. (2026). Citation check: The Adjustment of Consumption to Changing Expectations About Future Income. https://app.cochat.ai/papers/10.1086/261016
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- Flavin, M. A. (1981). The Adjustment of Consumption to Changing Expectations About Future Income. Journal of Political Economy. https://doi.org/10.1086/261016
Data sources
Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
