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A Reappraisal of Recent Tests of the Permanent Income Hypothesis
[report]

1985
unpublished

Hall (1978) showed that the permanent income hypothesis implies that consumption (1) follows a random walk, and (2) cannot be predicted by past income. Reexamination of Hall's data results in rejection of the random walk hypothesis in favor of the alternative hypothesis of positively autocorrelated changes. Evidently this is due to Hall's choice of a quadratic utility function. A logrithmic utility function implies a random walk in the log of consumption which is supported by the data. Hall

doi:10.3386/w1687
fatcat:zllmzdcv6jautax4qvjo3woera