Permanent Income Hypothesis, Myopia and Liquidity Constraints: A Case Study of Pakistan
Journal Title: Asian Economic and Financial Review - Year 2012, Vol 2, Issue 1
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. Hall’s 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
Authors and Affiliations
Khalid Khan| Lecturer Department of Economics, Lasbela University of Agriculture, Water and Marine Sciences, (LUAWMS), Uthal, Balochistan, Hazrat Yousaf| Lecturer Department of Economics, Lasbela University of Agriculture, Water and Marine Sciences, (LUAWMS), Uthal, Balochistan, Muhammed Ghazanfar Abbas| Lecturer Department of Economics, Lasbela University of Agriculture, Water and Marine Sciences, (LUAWMS), Uthal, Balochistan, Manzoor H Memon ChE| Chartered Economist, Senior Manager, JCR-VIS Credit Rating Co. Limited, Mohammed Nishat| Professor Department of Finance and Economics, Institute of Business Administration (IBA), Karachi
Keywords
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