TESTING THE PERMANENT-INCOME/LIFE-CYCLE HYPOTHESIS WITH AGGREGATE DATA

John Seater ()

Macroeconomic Dynamics, 1998, vol. 2, issue 3, 401-425

Abstract: The aggregate implications of the permanent-income/life-cycle hypothesis (PILCH) are derived rigorously. Virtually all empirical rejections of PILCH based on aggregated data are shown to result from misspecifications or from characteristics of aggregate data that have been overlooked. Valid aggregate tests are proposed. Those based on a properly formulated aggregate consumption function may be superior to those based on Euler-equation methods.

Date: 1998
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