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Title: |
Consumption Growth, Income Growth and Earnings Uncertainty: Simple
Cross-Country Evidence |
| Author: |
Hahm, Joon-Ho |
| Author
Affiliation: |
Korea
Development Institute |
| Source: |
International Economic Journal, Summer 1999, v. 13, no. 2, pp. 39-58 |
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Publication Date: |
Summer 1999 |
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Abstract: |
The consumption growth/income growth
parallel found in the low frequency cross-country aggregate data has
been interpreted as evidence against the certainty equivalence
life-cycle/permanent income hypothesis. This paper analyzes existence of
precautionary premia in consumption growth as a potential source of the
parallel, and tests the hypothesis that countries with inherently larger
earnings uncertainty show systematically steeper consumption growth
paths and higher saving rates. Empirical results indicate a potentially
important role of precautionary saving motives in explaining the
cross-country differentials in consumption growth and saving rate.
However, the presence of precautionary premia is not enough to account
for the high correlation between average consumption growth and average
income growth across countries. I conclude that the consumption
growth/income growth parallel remains as a robust long-run empirical
relationship challenging the life-cycle/permanent income hypothesis. |
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