Abstract
Abstract. Friedman (1957) states that permanent consumption is a function of permanent income in the long-run. Co-integration theory is first used to test whether a long-run equilibrium relation exists between the two variables. The existence of an error-correction form between two variables is necessary and sufficient for them to be cointegrated. We applied for an error-correction form to conform the linear long-run relationship between permanent income and permanent consumption under special conditions and the elasticity of permanent income in logarithms with respect to permanent consumption in logarithms is unity.
Keywords. Permanent Consumption, Permanent Income, Co-Integration, Error Correction.
JEL. C00, C10, C20.
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