Permanent Income Hypothesis

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Citation

Aguiar, Mark and Erik Hurst (2008): “Permanent Income Hypothesis,” New Palgrave Dictionary of Economics, Palgrave Macmillan, 2008 (online 2016).

Abstract

The permanent income hypothesis (PIH) is a theory that links an individual’s consumption at any point in time to that individual’s total income earned over his or her lifetime. The hypothesis is based on two simple premises: (1) that individuals wish to equate their expected marginal utility of consumption across time and (2) that individuals are able to respond to income changes by saving and dis-saving. In this article we present the intuition and empirical implications of the PIH in several standard contexts.

BibTeX Cite:

@incollection {AguiarHurst2008,
	author={Aguiar, Mark and Erik Hurst},
	title={Permanent-Income Hypothesis},
	booktitle={The New Palgrave Dictionary of Economics},
	year={2016},
	publisher={Palgrave Macmillan UK},
	address={London},
	pages={1--5},
	abstract={The permanent income hypothesis (PIH) is a theory that links an individual's consumption at any point in time to that individual's total income earned over his or her lifetime. The hypothesis is based on two simple premises (1) that individuals wish to equate their expected marginal utility of consumption across time and (2) that individuals are able to respond to income changes by saving and dis-saving. In this article we present the intuition and empirical implications of the PIH in several standard contexts.},
	isbn={978-1-349-95121-5},
	doi={10.1057/978-1-349-95121-5_2801-1},
	url={https://doi.org/10.1057/978-1-349-95121-5_2801-1}
	}