Testing Hall's permanent income hypothesis for a developing country: the case of Fiji

Abstract

Hall () has stimulated considerable controversy and empirical work on testing the validity of the permanent income hypothesis (PIH). Much of this work is on the developed countries. In the developing countries per capita incomes show larger fluctuations and for the majority, opportunities for intertemporal substitution are limited. This paper uses the extended framework of Campbell and Mankiw () and finds that current consumption is determined by current income for more than two thirds of the consumers in Fiji.