Chapter

Consumption and Permanent Income

Angus Deaton

in Understanding Consumption

Published in print October 1992 | ISBN: 9780198288244
Published online November 2003 | e-ISBN: 9780191596131 | DOI: http://dx.doi.org/10.1093/0198288247.003.0003

Series: Clarendon Lectures in Economics

 Consumption and Permanent Income

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Discusses the permanent income hypothesis and the mechanisms by which consumption smoothing responds to short‐run changes in income. It also reviews the role played by income and expectations in transmitting fluctuations through the economy. The chapter considers detailed econometric evidence on the excess sensitivity of consumption to present and lagged changes in income. Explanations involving non‐stationary income, the timing of consumption, durables, and habit formation are critically evaluated.

Keywords: consumption smoothing; consumption timing; durables; excess sensitivity; expectations; fluctuations; habit formation; non‐stationarity; permanent income; short‐run

Chapter.  11686 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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