The permanent income hypothesis in underdeveloped economies:: Additional evidence

Abstract

Laumas and Laumas find no support for the permanent income hypothesis in recent work on a consumption function for India. However, permanent income has been used not only in consumption but also in demand for money functions. Estimates of demand for money in 10 Asian LDCs indicate that substitution of permanent for current income is warranted. In particular, the estimate for India is improved substantially by the use of permanent instead of current income. Furthermore, the weights obtained from a polynomial lag distribution are almost identical to the Laumas' exponential weights with which they construct permanent income.