The Permanent Income Hypothesis Revisited

Lawrence Christiano, Martin Eichenbaum and David Marshall

Econometrica, 1991, vol. 59, issue 2, 397-423

Abstract: Measured aggregate U.S. consumption does not behave like a martingale. The authors develop and test two variants of the permanent income model which reflect that. In both, agents make decisions in continuous time. In one variant, martingale behavior holds; serial persistence in measured consumption reflects only time aggregation. In the other, serial persistence also reflects technology shocks, and martingale behavior does not hold. Using both structural and atheoretical econometric models, the authors find little evidence against either variant: aggregate quarterly U.S. data do not convincingly distinguish between their continuous time models. Copyright 1991 by The Econometric Society.

Date: 1991
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Related works:
Working Paper: The permanent income hypothesis revisited (1990)
Working Paper: The Permanent Income Hypothesis Revisited (1987)
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