Effects of Transitory Consumption and Temporal Aggregation on the Permanent Income Hypothesis

Luigi Ermini

The Review of Economics and Statistics, 1993, vol. 75, issue 4, 736-40

Abstract: This paper shows that U.S. monthly consumption data are consistent with the permanent income hypothesis when transitory consumption and temporal aggregation effects are jointly incorporated into the model. In this case, a more appropriate representation for the permanent income hypothesis is the integrated-moving average IMA(1,1) process with a negative MA coefficient, rather than the repeatedly rejected random walk process. Restrictions on the relative importance of transitory and permanent consumption are also discussed, with and without measurement errors. Copyright 1993 by MIT Press.

Date: 1993
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