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A Semiparametric Analysis Of The Life Cycle-Permanent Income Hypothesis

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Author Info
YOON-JAE WHANG

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Abstract

This paper considers a semiparametric regression model to test the various implications of the Life Cycle-Permanent Income (LCP) hypothesis proposed by Hall (1978), The semiparametric regression model does not require any parametric assumption on the functional form of the unknown utility function in our analysis. In contrast, the linear regression models frequently used in the literature are justified under specific parametric forms of the utility function and may lead to a misleading conclusion on the LCP hypothesis if the parameterization is incorrect. Using both linear and semiparametric regression models, tests of the martingale properly of consumption along with several specification tests are performed on the U. S. quarterly data from 1947 to 1990. The results from the semiparametric model do not differ significantly from those from the linear model and suggest some evidences against the implications of the LCP hypothesis. [C14]

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Publisher Info
Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 7 (1993)
Issue (Month): 4 (December)
Pages: 89-108
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Handle: RePEc:taf:intecj:v:7:y:1993:i:4:p:89-108

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  1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  2. James H. Stock & Kenneth D. West, 1988. "Integrated Regressors and Tests of the Permanent Income Hypothesis," NBER Working Papers 2359, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
  4. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March. [Downloadable!] (restricted)
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  5. Whang, Yoon-Jae & Andrews, Donald W. K., 1993. "Tests of specification for parametric and semiparametric models," Journal of Econometrics, Elsevier, vol. 57(1-3), pages 277-318. [Downloadable!] (restricted)
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  6. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-54, July. [Downloadable!] (restricted)
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