Aggregate consumption and permanent income: An empirical investigation for Turkey

Date

1999

Author

Akçin, Ogün
Alper, C. Emre

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We examine the validity of the permanent income hypothesis (PIH) for Turkey by utilizing a general model that nests the PIH. Using quarterly aggregate private consumption data for 1987-1995, we find evidence against PIH since estimation results suggest that approximately 40 % of income goes to individuals who consume their current income in Turkey. Our estimation results are robust to changes in the real interest rate, or nonseparabilities in the consumer's utility function. We also examine sub-categories of aggregate consumption and find that for consumption of food and beverages the fraction is 60 %. However, estimations using data on consumption excluding durables as well as food and beverages yield an insignificant fraction providing support for the PIH. We also conduct Monte Carlo experiments to analyze small sample properties of the estimation results.

URI

http://www2.feas.metu.edu.tr/metusd/ojs/index.php/metusd
https://hdl.handle.net/11511/108223

Collections

Department of Economics, Article