Permanent Income Hypothesis, Myopia and Liquidity Constraints: A Case Study of Pakistan
نویسندگان
چکیده
In this paper, it is attempted to test the permanent income hypothesis (PIH) for Pakistan. If the PIH is not valid for Pakistan the study also attempts to find out the reasons for rejection of PIH. Hall’s random walk model (1978) and Campbell and Mankiw model (1990) are used to test for the validity of PIH. The results of this study indicate the strong validity of absolute income hypothesis (AIH) rather than PIH. Therefore, to find out the reasons for the rejection of the PIH in Pakistan we used Shea (1995) model. The results of the Shea (1995) model rejected the symmetric relationship between consumption and expected income and provide a little evidence of existence of liquidity constraints.
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