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A retrospective on Friedman's theory of permanent income

IFS Working Paper W04/01
Friedman's book on the Ӄonsumption FunctionԠis one of the great works of Economics demonstrating how the interplay between theoretical ideas and data analysis could lead to major policy implications. We present a short review of Friedman's Permanent Income Hypothesis, the origins of the idea and its theoretical foundations. We give a brief overview of its influence in modern economics and discuss some relevant empirical results and the way they relate to the original approach taken by Friedman.