A Note on the Cointegration of Consumption, Income, and Wealth

Jeremy Rudd and Karl Whelan ()
Additional contact information
Jeremy Rudd: Federal Reserve Board

No 5/RT/02, Research Technical Papers from Central Bank of Ireland

Abstract: Lettau and Ludvigson (2001) argue that a log-linearized approximation to an aggregate budget constraint predicts that log consumption, assets, and labour income will be cointegrated. They conclude that this cointegrating relationship is present in U.S. data, and that the estimated cointegrating residual forecasts future asset growth. This note examines whether the cointegrating relationship suggested by Lettau and Ludvigson's theoretical framework actually exists. We demonstrate that we cannot reject the hypothesis that cointegration is absent from the data once we employ measures of consumption, assets, and labor income that are jointly consistent with an underlying budget constraint. By contrast, Lettau and Ludvigson use a set of variables that do not belong together in an aggregate budget constraint, thereby testing a cointegrating relationship that is not implied by their theory.

Pages: 21 pages
Date: 2002-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (29)

Downloads: (external link)
https://centralbank.ie/docs/default-source/publica ... whelan).pdf?sfvrsn=4 (application/pdf)

Related works:
Working Paper: A note on the cointegration of consumption, income, and wealth (2002)
Working Paper: A note on the cointegration of consumption, income, and wealth (2002)
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:cbi:wpaper:5/rt/02

Access Statistics for this paper

More papers in Research Technical Papers from Central Bank of Ireland Contact information at EDIRC.
Bibliographic data for series maintained by Fiona Farrelly ().