Permanent Income Hypothesis, Myopia and Liquidity Constraints: A Case Study of Pakistan
Vol. 2 No. 1 (2012), Articles
Vol. 2 No. 1 (2012)

Permanent Income Hypothesis, Myopia and Liquidity Constraints: A Case Study of Pakistan

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
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Keywords

Permanent Income Hypothesis; Absolute Income Hypothesis; Symmetric Relationship; Liquidity Constraints

How to Cite

Khan, K. ., Yousaf, H. ., Abbas, M. G. ., ChE, M. H. M. ., & Nishat, M. . (2012). Permanent Income Hypothesis, Myopia and Liquidity Constraints: A Case Study of Pakistan. Asian Economic and Financial Review, 2(1), 155–162. Retrieved from https://archive.aessweb.com/index.php/5002/article/view/744
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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

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