The purpose of this paper is to investigate the evolution of MiltonFriedman's permanent income hypothesis from the 1940s to 1960s, andhow it became the paradigm of modern consumption theory. Modellingunobservables, such as permanent income and permanent consumption, isa long-standing issue in...

The purpose of this paper is to investigate the evolution of Milton Friedman's permanent income hypothesis from the 1940s to 1960s, and how it became the paradigm of modern consumption theory. Modelling unobservables, such as permanent income and permanent consumption, is a long-standing issue...