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The Deaton paradox in a long memory context with structural breaks

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Author Info
Luis A. Gil-Alana ()
Antonio Moreno ()
Seonghoon Cho ()

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Abstract

This paper contributes to the permanent income hypothesis (PIH) and excess consumption smoothness debate in the context of fractional integration. We show that the excess consumption smoothness result is a consequence of the quarterly data frequency commonly employed in empirical work. In fact, the I(1) hypothesis is rejected for the income process with monthly data in favor of a fractional integration order lower than 1. Moreover, if a structural break is taken into account, we observe a substantial reduction in the degree of consumption smoothness, especially after the break found in 1975.

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Publisher Info
Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 03/09.

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Length: 30 pages
Date of creation: 27 Apr 2009
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Handle: RePEc:una:unccee:wp0309

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Related research
Keywords: Consumption Smoothness; Permanent Income Hypothesis; Long Memory; Structural Breaks; Monthly Frequency;

Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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This page was last updated on 2009-11-19.

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