Generalizing the permanent-income hypothesis: Revisiting Friedman's conjecture on consumption

• 成果类型: Article
• 署名作者: Wang, N
• 署名单位: Columbia University
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2005.04.005
• 发表日期: 2006
• 页码: 737-752
• 关键词: Precautionary saving; permanent income; marginal propensity to consume; conditional heteroskedasticity

摘要

Friedman's contribution to the consumption literature goes well beyond the seminal permanent-income hypothesis. He conjectured that the marginal propensity to consume out of financial wealth shall be larger than out of human wealth, the present discounted value of future labor income. I present an explicitly solved model to deliver this widely noted consumption property by specifying that the conditional variance of changes in income increases with its level. A larger realization of income not only implies a higher level of human wealth. but also signals a riskier stream Of future labor income, inducing a higher precautionary saving. and thus giving rise to Friedman's conjecture. Appropriately adjusting human wealth for income risk, I show that Friedman's conjecture may be formulated as a generalized permanent income hypothesis. I further show that Friedman's conjecture captures the first-order effect of stochastic Precautionary savings. Finally, I propose a natural decomposition of the optimal saving rule to formalize various motives for holding wealth as emphasized in [Friedman, M., 1957. A Theory of the Consumption Function. Princeton University Press, Princeton]. (c) 2006 Elsevier B.V. All rights reserved.