IDEAS home Printed from
   My bibliography  Save this article

Is Consumption Too Smooth? Long Memory and the Deaton Paradox


  • Diebold, Francis X
  • Rudebusch, Glenn D


Under common ARIMA representations of income, the permanent-income hypothesis predicts that the volatility of consumption should be larger than the volatility of unanticipated shocks to income; this prediction is not supported by the data. The authors examine whether this apparent excess smoothness of consumption is the result of the ARIMA representation's implicit restrictions on low-frequency dynamics. By using a generalized long-memory stochastic representation, the authors construct confidence intervals for the long-run impulse response of income in the absence of such low-frequency restrictions. These intervals are quite wide and include regions in which excess smoothness vanishes. Copyright 1991 by MIT Press.

Suggested Citation

  • Diebold, Francis X & Rudebusch, Glenn D, 1991. "Is Consumption Too Smooth? Long Memory and the Deaton Paradox," The Review of Economics and Statistics, MIT Press, vol. 73(1), pages 1-9, February.
  • Handle: RePEc:tpr:restat:v:73:y:1991:i:1:p:1-9

    Download full text from publisher

    File URL:
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See for details.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    1. Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "Plant Turnover and Gross Employment Flows in the U.S. Manufacturing Sector," Journal of Labor Economics, University of Chicago Press, vol. 7(1), pages 48-71, January.
    2. Altonji, Joseph G & Ham, John C, 1990. "Variation in Employment Growth in Canada: The Role of External, National, Regional, and Industrial Factors," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages 198-236, January.
    3. Evans, David S, 1987. "Tests of Alternative Theories of Firm Growth," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 657-674, August.
    4. Nickell, S.J., 1987. "Dynamic models of labour demand," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 9, pages 473-522 Elsevier.
    5. Murphy, Kevin J & Hofler, Richard A, 1984. "Determinants of Geographic Unemployment Rates: A Selectively Pooled-Simultaneous Model," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 216-223, May.
    6. Robert E. Hall, 1970. "Why Is the Unemployment Rate So High at Full Employment?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 369-410.
    7. Stephen T. Marston, 1985. "Two Views of the Geographic Distribution of Unemployment," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 57-79.
    8. Topel, Robert H, 1986. "Local Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 111-143, June.
    9. Jonathan S. Leonard, 1986. "In the Wrong Place at the Wrong Time: The Extent of Frictional and Structural Unemployment," NBER Working Papers 1979, National Bureau of Economic Research, Inc.
    10. Davis, Steven J, 1987. "Allocative Disturbances and Specific Capital in Real Business Cycle Theories," American Economic Review, American Economic Association, vol. 77(2), pages 326-332, May.
    11. Harry J. Holzer & Lawrence F. Katz & Alan B. Krueger, 1991. "Job Queues and Wages," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 739-768.
    12. Robert J. Gordon, 1981. "Inflation, Flexible Exchange Rates, and the Natural Rate of Unemployment," NBER Working Papers 0708, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:73:y:1991:i:1:p:1-9. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.