Permanent Income Hypothesis, Myopia and Liquidity Constraints: A Case Study of PakistanReport as inadecuate




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Journal: Asian Economic and Financial Review

Abstract: This paper is an attempt to test the Permanent Income Hypothesis PIH, Myopia and Liquidity Constraints as a case study for Pakistan. The paper also attempts to find out valid reasoning incase the PIH is rejected. Halls random walk model 1978 and Campbell and Mankiw model 1990 are used to test for the validity of PIH. The results reject the PIH and indicate the strong validity of Absolute Income Hypothesis AIH in Pakistan. Accordingly, Shea 1995 model is also used to validate the rejection of the PIH. The application of Shea 1995 model confirms the rejection; the symmetric relationship between consumption and expected income and provide a little evidence of existence of liquidity constraints

Economics

Asian Economic and Financial Review

Month: 03-2012 Issue: 1







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