Abstract
In this paper, I use stock return data to test an intertemporal model of the current account. I find that the model performs well in three countries: the U.K., Canada, and Japan. Hall [Hall, R.E., 1978. Stochastic implication of the life cycle-permanent income hypothesis: theory and evidence. J. Polit. Econ. 86 (6), 971-987] points out that because stock price predicts the future state of the economy, it predicts consumption. Assuming that consumption depends on permanent income, my empirical finding indicates that a representative agent smoothes consumption based on stock market information. In other words, stock market returns yield information about permanent income.
Original language | English |
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Pages (from-to) | 302-321 |
Number of pages | 20 |
Journal | Research in International Business and Finance |
Volume | 23 |
Issue number | 3 |
DOIs | |
Publication status | Published - 2009 Sept 1 |
Externally published | Yes |
Keywords
- Current account
- Permanent income
- Stock return
ASJC Scopus subject areas
- Business, Management and Accounting (miscellaneous)
- Finance