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Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption

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  • Miron, Jeffrey A

Abstract

Recent empirical work has found that both aggregate and micro data reject the rational expectations version of the Life Cycle-Permanent Income model of consumption. This paper examines a new possible explanation for the rejections: the treatment of seasonal fluctuations. There are substantial seasonal fluctuations in consumption purchases, but no previous paper has determined whether these fluctuations are consistent with the Life Cycle-Permanent Income model. The results in this paper show that when the seasonal fluctuations in consumption purchases are included in an analysis of the Life Cycle-Permanent Income model there is no evidence in the aggregate data against the model. The estimates of the parameters of agents' utility functions obtained here are plausible, and the data do not reject the overidentifying restrictions on the model.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 94 (1986)
Issue (Month): 6 (December)
Pages: 1258-79

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Handle: RePEc:ucp:jpolec:v:94:y:1986:i:6:p:1258-79

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  1. Davidson, James E H, et al, 1978. "Econometric Modelling of the Aggregate Time-Series Relationship between Consumers' Expenditure and Income in the United Kingdom," Economic Journal, Royal Economic Society, vol. 88(352), pages 661-92, December.
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  3. Eichenbaum, Martin S & Hansen, Lars Peter & Singleton, Kenneth J, 1988. "A Time Series Analysis of Representative Agent Models of Consumption and Leisure Choice under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 51-78, February.
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Citations

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Cited by:
  1. Orazio P. Attanasio & Guglielmo Weber, 1994. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," NBER Working Papers 4795, National Bureau of Economic Research, Inc.
  2. Sangdai Ryoo, 2002. "Testing for Sunspot in the Foreign Exchange Market," International Economic Journal, Taylor & Francis Journals, vol. 16(3), pages 39-58.
  3. Martin Eichenbaum & Kenneth I. Singleton, 1986. "Do Equilibrium Real Business Cycle Theories Explain Postwar U.S. Business Cycles?," NBER Chapters, in: NBER Macroeconomics Annual 1986, Volume 1, pages 91-146 National Bureau of Economic Research, Inc.
  4. Masao Ogaki, 2003. "Aggregation under Complete Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 977-986, October.
  5. Jeffrey A. Miron & Stephen P. Zeldes, 1989. "Seasonality, Cost Shocks, and the Production Smoothing Model of Inventories," NBER Working Papers 2360, National Bureau of Economic Research, Inc.
  6. Juan-Ángel Jiménez-Martín & Rafael Flores de Frutos, 2004. "Seasonal Fluctuations and Dynamic Equilibrium Models of Exchange Rate," Documentos del Instituto Complutense de Análisis Económico 0413, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales.
  7. Ogaki, Masao & Park, Joon Y., 1997. "A cointegration approach to estimating preference parameters," Journal of Econometrics, Elsevier, vol. 82(1), pages 107-134.
  8. Gianluca Cubadda, 2001. "Common Features In Time Series With Both Deterministic And Stochastic Seasonality," Econometric Reviews, Taylor & Francis Journals, vol. 20(2), pages 201-216.
  9. Kris Jacobs & Kevin Q. Wang, 2002. "Idiosyncratic Consumption Risk and the Cross-Section of Asset Returns," CIRANO Working Papers 2002s-11, CIRANO.
  10. Andrew B. Abel & Laurence J. Kotlikoff, 1988. "Does the Consumption of Different Age Groups Move Together? A New Nonparametric Test of Intergenerational Altruism," NBER Working Papers 2490, National Bureau of Economic Research, Inc.
  11. Ferson, Wayne E. & Constantinides, George M., 1991. "Habit persistence and durability in aggregate consumption: Empirical tests," Journal of Financial Economics, Elsevier, vol. 29(2), pages 199-240, October.
  12. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  13. Hardouvelis, Gikas A & Malliaropoulos, Dimitrios, 2004. "The Yield Spread as a Symmetric Predictor of Output and Inflation," CEPR Discussion Papers 4314, C.E.P.R. Discussion Papers.
  14. Cellini, Roberto & Cuccia, Tiziana, 2011. "Are exchange rates really free from seasonality? An exploratory analysis on monthly time series," MPRA Paper 30888, University Library of Munich, Germany.
  15. Arrau, Patricio & van Wijnbergen, Sweder, 1991. "Intertemporal substitution, risk aversion, and private savings in Mexico," Policy Research Working Paper Series 682, The World Bank.
  16. Stig V. Møller & Jesper Rangvid, 2012. "End-of-the-year economic growth and time-varying expected returns," CREATES Research Papers 2012-42, School of Economics and Management, University of Aarhus.
  17. Martha Starr-McCluer, 2000. "The effects of weather on retail sales," Finance and Economics Discussion Series 2000-08, Board of Governors of the Federal Reserve System (U.S.).

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