Stochastic trends in consumption and the term structure of interest rates

Article Abstract:

The behavior of expected term premiums on real bonds is analyzed through a general equilibrium model that takes into account the decomposition of log consumption into its temporary and permanent parts. Generally, the premium exhibits a postitive response upon bond maturity for a decomposition characterized by a zero correlation in its two components. On the other hand, the premium, in a perfect correlation situation, adjusts to the degree of change in the permanent component vis-a-vis an introduced endowment innovation. Positive premiums arise when the change is less than the innovation and vice versa.

Models, Interest rates, Endowments

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Wealth, income, and consumption in a developing economy

Article Abstract:

Milton Friedman's Permanent Income Hypothesis (PIH), dealing with components of income and consumption and their interrelationship, is tested using India as a model. The theory was devised to explain how rich countries became what they are. The features of the hypothesis such as the proportionality of permanent consumption to permanent income, the noncorrelation between permanent and transitory components of income and consumption are tested. The results support the PIH.

Economic aspects, Testing, Developing countries, Permanent income theory

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Predicting tax rate changes: insights from the permanent income hypothesis

Article Abstract:

Consideration of the permanent income theory of consumption helps in forecasting changes in tax rates. The hypothesis' claim that consumption movements becomes effective in forecasting tax changes only if the changes are expected by consumers was confirmed on member countries of the Organization for Economic Cooperation and Development (OECD). Such validation belies traditional belief regarding the unpredictableness of aggregate tax rate changes.

Public Finance Activities, Economics, Research and Development in the Social Sciences and Humanities, Tax Rates, Analysis, Economic forecasting

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