The Deaton paradox in a long memory context with structural breaks

Luis Gil-Alana, Antonio Moreno () and Seonghoon Cho

No 03/09, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: This paper contributes to the permanent income hypothesis (PIH) and excess consumption smoothness debate in the context of fractional integration. We show that the excess consumption smoothness result is a consequence of the quarterly data frequency commonly employed in empirical work. In fact, the I(1) hypothesis is rejected for the income process with monthly data in favor of a fractional integration order lower than 1. Moreover, if a structural break is taken into account, we observe a substantial reduction in the degree of consumption smoothness, especially after the break found in 1975.

Keywords: Consumption Smoothness; Permanent Income Hypothesis; Long Memory; Structural Breaks; Monthly Frequen (search for similar items in EconPapers)
JEL-codes: C12 C22 C32 E21 E32 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2009-04-27
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Related works:
Journal Article: The Deaton paradox in a long memory context with structural breaks (2012)
Working Paper: The Deaton paradox in a long memory context with structural breaks (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:una:unccee:wp0309

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