RATIONAL-EXPECTATIONS, SAVING AND ANTICIPATED CHANGES IN INCOME - EVIDENCE FROM MALAYSIA AND SINGAPORE

The paper tests a version of the rational expectation permanent income hypothesis model for Malaysia and Singapore. The empirical results indicate that current saving correctly anticipates future changes in income. However, the test results also show that changes in consumption are predictable on the basis of known information. In addition, actual consumption in both countries are ''excessively sensitive'' to fluctuations in current income.