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Article: Using the permanent income hypothesis for forecasting.
- Article from:
- Economic Quarterly
- Article date:
- January 1, 1995
- Author:
CopyrightCOPYRIGHT 1995 Federal Reserve Bank of Richmond. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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Personal consumption expenditures grew by almost 2 percent during 1993 in real, per-capita terms. Real disposable income per capita, meanwhile, actually fell slightly. By definition, households draw down their savings when consumption grows faster than income. In fact, the figures for consumption and income just mentioned underlie a decline in the personal savings rate from over 6 percent in the fourth quarter of 1992 to only about 4 percent in the fourth quarter of 1993.(1)
One popular interpretation of these data starts with the idea that reductions in the savings rate cannot be permanently sustained. Eventually, households must rebuild their savings by cutting back ...