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Effects of Transitory Consumption and Temporal Aggregation on the Permanent Income Hypothesis

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  • Ermini, Luigi

Abstract

This paper shows that U.S. monthly consumption data are consistent with the permanent income hypothesis when transitory consumption and temporal aggregation effects are jointly incorporated into the model. In this case, a more appropriate representation for the permanent income hypothesis is the integrated-moving average IMA(1,1) process with a negative MA coefficient, rather than the repeatedly rejected random walk process. Restrictions on the relative importance of transitory and permanent consumption are also discussed, with and without measurement errors. Copyright 1993 by MIT Press.

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  • Ermini, Luigi, 1993. "Effects of Transitory Consumption and Temporal Aggregation on the Permanent Income Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 736-740, November.
    • Handle: RePEc:tpr:restat:v:75:y:1993:i:4:p:736-40
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    Cited by:

    1. Robert Grafstein, 2009. "The Puzzle of Weak Pocketbook Voting," Journal of Theoretical Politics, , vol. 21(4), pages 451-482, October.
    2. Gospodinov, Nikolay & Komunjer, Ivana & Ng, Serena, 2017. "Simulated minimum distance estimation of dynamic models with errors-in-variables," Journal of Econometrics, Elsevier, vol. 200(2), pages 181-193.
    3. Taylor, Alan M, 2001. "Potential Pitfalls for the Purchasing-Power-Parity Puzzle? Sampling and Specification Biases in Mean-Reversion Tests of the Law of One Price," Econometrica, Econometric Society, vol. 69(2), pages 473-498, March.
    4. Liping Gao & Hyeongwoo Kim & Yaoqi Zhang, 2013. "Revisiting the Empirical Inconsistency of the Permanent Income Hypothesis: Evidence from Rural China," Auburn Economics Working Paper Series auwp2013-05, Department of Economics, Auburn University.
    5. Michael A. Thornton & Marcus J. Chambers, 2013. "Temporal aggregation in macroeconomics," Chapters, in: Nigar Hashimzade & Michael A. Thornton (ed.), Handbook of Research Methods and Applications in Empirical Macroeconomics, chapter 13, pages 289-310, Edward Elgar Publishing.

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