Testing the life-cycle permanent income hypothesis using intra-year data for Sweden

Kenneth Leong and Michael McAleer

Mathematics and Computers in Simulation (MATCOM), 1999, vol. 48, issue 4, 551-560

Abstract: Real non-durable consumption expenditure for many countries typically exhibits substantial seasonal fluctuations. In this paper, two seasonal models that are consistent with an extension of the rational expectations life-cycle permanent income hypothesis are evaluated using quarterly seasonally unadjusted Swedish consumption expenditure. One model is a first-order periodically integrated autoregressive model. Formal procedures for periodic integration are used to test this hypothesis. The second model captures seasonal habit persistence in the form of a periodic seasonal ARIMA model. It is found that both models fail to capture adequately the dynamics in Swedish consumption expenditure, which suggests a rejection of the rational expectations life-cycle permanent income hypothesis.

Keywords: Life-cycle permanent income hypothesis; Rational expectations; Seasonality; Periodic models (search for similar items in EconPapers)
Date: 1999
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:matcom:v:48:y:1999:i:4:p:551-560

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