A retrospective on Friedman's theory of permanent income

Costas Meghir

Published on 10 January 2004

This Working Paper is an update of A retrospective on Friedman’s theory of permanent income

We present a short review of Friedman's Permanent Income Hypothesis, the origins of the idea and its theoretical foundations.

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.