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

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  • Jeffrey A. Miron

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

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1845.

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Date of creation: Feb 1986
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Publication status: published as Miron, Jeffrey A. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," Journal of Political Economy, Vol. 94, No. 6, (1986), pp. 1258-1279.
Handle: RePEc:nbr:nberwo:1845

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  1. Shiller, Robert J., 1982. "Consumption, asset markets and macroeconomic fluctuations," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 17(1), pages 203-238, January.
  2. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
  3. Davidson, James E. H. & Hendry, David F., 1981. "Interpreting econometric evidence : The behaviour of consumers' expenditure in the UK," European Economic Review, Elsevier, Elsevier, vol. 16(1), pages 177-192.
  4. Martin S. Eichenbaum & Lars Peter Hansen & Kenneth J. Singleton, 1986. "A Time Series Analysis of Representative Agent Models of Consumption andLeisure Choice Under Uncertainty," NBER Working Papers 1981, National Bureau of Economic Research, Inc.
  5. Thomas J. Sargent, 1977. "Rational expectations, econometric exogeneity and consumption," Staff Report, Federal Reserve Bank of Minneapolis 25, Federal Reserve Bank of Minneapolis.
  6. Grossman, Sanford J & Shiller, Robert J, 1981. "The Determinants of the Variability of Stock Market Prices," American Economic Review, American Economic Association, American Economic Association, vol. 71(2), pages 222-27, May.
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  8. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, Econometric Society, vol. 50(5), pages 1269-86, September.
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  12. Rubinstein, Mark, 1974. "An aggregation theorem for securities markets," Journal of Financial Economics, Elsevier, Elsevier, vol. 1(3), pages 225-244, September.
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  14. Bernanke, Ben, 1985. "Adjustment costs, durables, and aggregate consumption," Journal of Monetary Economics, Elsevier, Elsevier, vol. 15(1), pages 41-68, January.
  15. Shapiro, Matthew D., 1984. "The permanent income hypothesis and the real interest rate : Some evidence from panel data," Economics Letters, Elsevier, Elsevier, vol. 14(1), pages 93-100.
  16. Mervyn A. King, 1983. "The Economics of Saving," NBER Working Papers 1247, National Bureau of Economic Research, Inc.
  17. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  18. N. Gregory Mankiw & Julio J. Rotemberg & Lawrence H. Summers, 1982. "Intertemporal Substitution in Macroeconomics," NBER Working Papers 0898, National Bureau of Economic Research, Inc.
  19. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(6), pages 971-87, December.
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Cited by:
  1. Kris Jacobs & Kevin Q. Wang, 2002. "Idiosyncratic Consumption Risk and the Cross-Section of Asset Returns," CIRANO Working Papers, CIRANO 2002s-11, CIRANO.
  2. Fumio Hayashi, 1985. "Tests for Liquidity Constraints: A Critical Survey," NBER Working Papers 1720, National Bureau of Economic Research, Inc.
  3. Jeffrey A. Miron & Stephen P. Zeldes, . "Seasonality, Cost Shocks and the Production Smoothing Model of Inventories," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 01-87, Wharton School Rodney L. White Center for Financial Research.
  4. 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.
  5. Martha Starr-McCluer, 2000. "The effects of weather on retail sales," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2000-08, Board of Governors of the Federal Reserve System (U.S.).
  6. 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.
  7. Gianluca Cubadda, 2001. "Common Features In Time Series With Both Deterministic And Stochastic Seasonality," Econometric Reviews, Taylor & Francis Journals, Taylor & Francis Journals, vol. 20(2), pages 201-216.
  8. Juan-Ángel Jiménez-Martín & Rafael Flores de Frutos, 2004. "Seasonal Fluctuations and Dynamic Equilibrium Models of Exchange Rate," Documentos de Trabajo del ICAE 0413, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
  9. Ferson, Wayne E. & Constantinides, George M., 1991. "Habit persistence and durability in aggregate consumption: Empirical tests," Journal of Financial Economics, Elsevier, Elsevier, vol. 29(2), pages 199-240, October.
  10. Arrau, Patricio & van Wijnbergen, Sweder, 1991. "Intertemporal substitution, risk aversion, and private savings in Mexico," Policy Research Working Paper Series 682, The World Bank.
  11. Ogaki, M. & Park, Y.Y., 1989. "A Cointegration Approach To Estimating Preference Parameters," RCER Working Papers 209, University of Rochester - Center for Economic Research (RCER).
  12. 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.
  13. Martin S. Eichenbaum & Kenneth J. Singleton, 1986. "Do Equilibrium Real Business Cycle Theories Explain Post-War U.S. Business Cycles?," NBER Working Papers 1932, National Bureau of Economic Research, Inc.
  14. 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.
  15. Sangdai Ryoo, 2002. "Testing for Sunspot in the Foreign Exchange Market," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(3), pages 39-58.
  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. Hardouvelis, Gikas A & Malliaropoulos, Dimitrios, 2004. "The Yield Spread as a Symmetric Predictor of Output and Inflation," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4314, C.E.P.R. Discussion Papers.

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