Unanticipated Aggregate Disturbances and Tests of the Life-Cycle Consumption Model Using Panel Data

Randall P Mariger and Kathryn Shaw

The Review of Economics and Statistics, 1993, vol. 75, issue 1, 48-56

Abstract: Several recent studies have used data on food consumption from the Panel Study of Income Dynamics (PSID) to test t he rational expectations life-cycle hypothesis against the alternative of prevalent liquidity constraints. These tests invoke the rational expectations restriction that income forecast errors are independent of lagged information. This restriction, however, applies only in a time-series context. It is possible that unanticipated macroeconomic disturbances cause forecast errors to be correlated.with lagged information in a cross-section of families. The authors present evidence of such a correlation in the PSID data, show that this correlation biases previous tests of the life-cycle model toward rejection, and derive a proper test of the life-cycle model using pa nel data. Copyright 1993 by MIT Press.

Date: 1993
References: Add references at CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://links.jstor.org/sici?sici=0034-6535%2819930 ... 0.CO%3B2-F&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tpr:restat:v:75:y:1993:i:1:p:48-56

Ordering information: This journal article can be ordered from
https://mitpressjour ... rnal/?issn=0034-6535

Access Statistics for this article

The Review of Economics and Statistics is currently edited by Pierre Azoulay, Olivier Coibion, Will Dobbie, Raymond Fisman, Benjamin R. Handel, Brian A. Jacob, Kareen Rozen, Xiaoxia Shi, Tavneet Suri and Yi Xu

More articles in The Review of Economics and Statistics from MIT Press
Bibliographic data for series maintained by The MIT Press ().