A Study on the Permanent Income Hypothesis: A Case of 12 Stylized Facts

Abstract

This note’s contents depend on three estimates of the Marginal Propensity to Consume (MPC): a high measure, obtained from the long run relation between consumption and income, a low measure, obtained from the intermediate run of the MPC relation, and an actual measure, obtained from current values of consumption and income. The objectives are to find out the actual regularities in the statistical distribution and behavior of steady state consumption, conditional on the way the MPC is estimated. The note computes the implied steady state variables, and from there, high, low, and actual measures of the growth rates of consumption are recovered.  A scrutiny of the results reveals 12 stylized facts that are implied by the basic progress of the steady states. These facts encompass level links of the consumption series, their variances, and their growth rates, in addition to their statistical distributions. Therefore the note describes extensively the stylized facts that any model of the permanent income hypothesis needs to explain and corroborate.