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Information-Aggregation Bias

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  • Goodfriend, Marvin

Abstract

Aggregation in the presence of data-processing lags distorts the information content of data, violating orthogonality restrictions that hold at the individual level. Though the phenomenon is general, it is illustrated here for the life-cycle-permanent-income model. Cross-section and pooled-panel data induce information-aggregation bias akin to that in aggregate time series. Calculations show that information aggregation can seriously bias tests of the life-cycle model on aggregate time series, cross-section, and pooled-panel data. Copyright 1992 by American Economic Association.

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  • Goodfriend, Marvin, 1992. "Information-Aggregation Bias," American Economic Review, American Economic Association, vol. 82(3), pages 508-519, June.
    • Handle: RePEc:aea:aecrev:v:82:y:1992:i:3:p:508-19
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