Empirical Test of the Rational Expectations-permanent Income Hypothesis: Abel and Mishkin’s General Approach: Evidence from Algeria

Abstract

The purpose of this paper is to test through an empirical analysis the Rational Expectations-Permanent Income Hypothesis. To do this, we referred to the General approach of Abel and Mishkin (1983). Our econometric tests are based on annual data over the period [1985-2015] related to households in Algeria. Our results show the rejection of the general approach’s model which leads to the rejection of the Rational Expectations-Permanent Income Hypothesis. As finding, Algerian households do not form rational expectations about their future income.