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Information-Aggregation Bias

  • Goodfriend, Marvin

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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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 82 (1992)
Issue (Month): 3 (June)
Pages: 508-19

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Handle: RePEc:aea:aecrev:v:82:y:1992:i:3:p:508-19
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  1. Campbell, John Y. & Mankiw, N. Gregory, 1990. "Permanent Income, Current Income, and Consumption," Scholarly Articles 3353762, Harvard University Department of Economics.
  2. Flavin, Marjorie A, 1981. "The Adjustment of Consumption to Changing Expectations about Future Income," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 974-1009, October.
  3. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  4. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
  5. Stephen Zeldes, . "Consumption and Liquidity Constraints: An Empirical Investigation," Rodney L. White Center for Financial Research Working Papers 24-85, Wharton School Rodney L. White Center for Financial Research.
  6. Fumio Hayashi, 1984. "The Permanent Income Hypothesis and Consumption Durability: Analysis Based on Japanese Panel Data," NBER Working Papers 1305, National Bureau of Economic Research, Inc.
  7. Barsky, Robert B & Mankiw, N Gregory & Zeldes, Stephen P, 1986. "Ricardian Consumers with Keynesian Propensities," American Economic Review, American Economic Association, vol. 76(4), pages 676-91, September.
  8. Matthew D. Shapiro & N. Gregory Mankiw, 1984. "Trends, Random Walks, and Tests of the Permanent Income Hypothesis," Cowles Foundation Discussion Papers 725, Cowles Foundation for Research in Economics, Yale University.
  9. John Y. Campbell & Angus Deaton, 1987. "Is Consumption Too Smooth?," NBER Working Papers 2134, National Bureau of Economic Research, Inc.
  10. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
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