Tests of the Life Cycle-Permanent Income Hypothesis in the Presence of Random Walks: Asymptotic Theory and Small-Sample Interpretations
AbstractRecent literature on cointegration and unit roots has focused attention on the distribution of test statistics frequently used to test efficiency in rational expectations models. This paper concentrates on the permanent income hypothesis of real consumption. The authors illustrate, by using the proper asymptotic theory and small-sample approximations, the cases in which tests of such a hypothesis are biased towards rejection and cases where they have the correct sizes. Their results serve to interpret numerous Monte Carlo studies in the literature on this issue. Special emphasis is placed on the distinction between "weak" and "semistrong" rationality tests. Copyright 1988 by Royal Economic Society.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 40 (1988)
Issue (Month): 4 (December)
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Other versions of this item:
- Dolado, Juan José & Banerjee, Anindya, . "Tests of the life cycle - permanent income hypothesis in the presence of random walks: asymptotic theory and small sample interpretations," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/772, Universidad Carlos III de Madrid.
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- Banerjee, Anindya & Dolado, Juan & Galbraith, John W., 1990.
"Orthogonality tests with de-trended data : Interpreting Monte-Carlo results using Nagar expansions,"
Elsevier, vol. 32(1), pages 19-24, January.
- Dolado, Juan José & Banerjee, Anindya & Galbraith, John W., 1990. "Orthogonality tests with de-trended data: Interpreting Monte-Carlo results using Nagar expansions," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/3322, Universidad Carlos III de Madrid.
- Campos, Julia & Ericsson, Neil R. & Hendry, David F., 1996.
"Cointegration tests in the presence of structural breaks,"
Journal of Econometrics,
Elsevier, vol. 70(1), pages 187-220, January.
- Julia Campos & Neil R. Ericsson & David F. Hendry, 1993. "Cointegration tests in the presence of structural breaks," International Finance Discussion Papers 440, Board of Governors of the Federal Reserve System (U.S.).
- Françoise Maurel & Laurence Bloch, 1991. "Consommation-revenu permanent : un regard d'économètre," Économie et Prévision, Programme National Persée, vol. 99(3), pages 113-144.
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