Cramer, H., Mathematical Methods of Statistics (Princeton: Princeton University Press, 1946). Pesaran, M. H., Alternative Econometric Approach to the Permanent Income Hypothesis: an International Comparison: A Comment, this REVIEW, LV (1973), 259-261. Rao, B. B., Alternative Econometric Approach to the Permanent Income Hypothesis: An International Comparison, this REVIEW, LV (1973), 261. Singh, B., Maximum Likelihood Estimation of the Friedman Consumption Function, this REVIEW, LVII (Feb. 1975). Singh, B. and H. Drost, Alternative Econometric Approach to the Permanent Income Hypothesis: an International Comparison, this REVIEW, LIII (Nov. 1971), 326-334. Tukey, J. W. Components in Regression. Biometrics (1951). Willassen, Y., Specification and estimation of the original P.I.H. (Working Paper) 1972. Wold, H., Nonlinear Estimation by Iterative Least Square Procedures. Festschrift for J. Neyman. Wiley and Sons, 1966.

Balvir Singh, Helmar Drost, An Alternative Econometric Approach to the Permanent Income Hypothesis: An International Comparison, The Review of Economics and Statistics, Vol. 53, No. 4 (Nov., 1971), pp. 326-334

[This paper develops an iterative procedure for estimating "specific" and "income" consumer unit scales in Engel curve analysis. The proposed procedure is essentially a modification of the Prais and Houthakker method and is illustrated by means of a numerical example based on the Indian National Sample Survey data.]

This paper deploys the Granger method to determine the directions and patterns of causality between national income and total as well as various components of public expenditure. Empirical results based on the data for India (1950-81) suggest that while at the disaggregate level the causal process is rather diverse, it is essentially feed back-type at the aggregate level. It neither confirms the Wagnerian (Income Public Expenditure) nor the Keynesian (Public Expenditure National Income) view. The paper recommends that two variables be treated as jointly-dependent in both the public finance and macroeconometric studies.

SINCE the publication Friedman's A Theory Consumption Function (1957), a number papers have appeared testing the permanent income hypothesis (PIH). With only a few exceptions (see Singh & Drost, 1971; Singh, 1975), most the researchers have estimated permanent income through the application Cagan's (1956) or Koyck's (1954) distributed lag model.1 As is well known, this leads to a regression current consumption on personal disposable income (PDI) and lagged consumption a form very similar to the consumption function implied by Brown's habit persistence hypothesis (HPH). Indeed, after the Klein-Friedman debate it has become almost a practice to consider HPH to be truly a complete anticipation of PIH notwithstanding the fact that the focus the two hypotheses is quite different. In fact, the application Koyck's model to PIH by its nature violates some the basic assumptions the latter. Not only does it bring about dependence between the transitory and permanent components income, but also yields transitory components income and consumption that may be mutually correlated (see Holmes, 1971; Singh, 1969; Walters, 1968). Thus, the tests PIH that use Koyck's distributed lag model in the time series context (see Holmes, 1970, 1972; Singh and Drost, 1971; Singh, 1975) clearly become dubious value. In addition, there are some builtin problems in the estimation a distributed lag model which although quite well known are often ignored in the empirical research related to PIH. This paper intends to discuss the basic differences in the two hypotheses and thereby show that it is wrong to identify HPH and PIH with each other. In section II, we set up the PIH and HPH models, outline various assumptions and examine in what respect the two models are different. In section III we analyze and compare the properties the estimators in the two models.