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

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  • Ermini, Luigi
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    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.

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    Bibliographic Info

    Article provided by MIT Press in its journal Review of Economics & Statistics.

    Volume (Year): 75 (1993)
    Issue (Month): 4 (November)
    Pages: 736-40

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    Handle: RePEc:tpr:restat:v:75:y:1993:i:4:p:736-40

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    Web page: http://mitpress.mit.edu/journals/

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    Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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    Cited by:
    1. Alan M. Taylor, 2000. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," NBER Working Papers 7577, National Bureau of Economic Research, Inc.
    2. Liping Gao & Hyeongwoo Kim & Yaoqi Zhang, 2013. "Revisiting the Empirical Inconsistency of the Permanent Income Hypothesis: Evidence from Rural China," Auburn Economics Working Paper Series, Department of Economics, Auburn University auwp2013-05, Department of Economics, Auburn University.

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