Work

Superior Information, Income Shocks, and the Permanent Income Hypothesis

Year: 2001

Type: article

Abstract: According to the permanent income hypothesis with quadratic preferences, savings should react only to transitory income shocks, but not to permanent shocks. The problem is that income shock components are not separately observable. I show how the combination of income realizations with subjective expectations can help to identify separately the transitory and the permanent shock to income, thus providing a powerful test of the theory. The empirical analysis is performed on a sample of Italian households drawn from the 1989-1991 Survey of Household Income and Wealth.

Source: The Review of Economics and Statistics

DOI: 10.1162/00346530152480117

Author: Luigi Pistaferri

Institutions: Center for Economic and Policy Research, Stanford Institute for Economic Policy Research, Stanford University

Language: English

Topic: Financial Literacy, Pension, Retirement Analysis

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

Funder: Ministerio de Universidades

OpenAlex ID: W3122823788

FWCI: 13.74

Cites: 21

Cited by: 132

Related to: 10