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Information-aggregation bias

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  • Marvin Goodfriend

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 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.

Suggested Citation

  • Marvin Goodfriend, 1991. "Information-aggregation bias," Working Paper 91-06, Federal Reserve Bank of Richmond.
  • Handle: RePEc:fip:fedrwp:91-06
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    References listed on IDEAS

    as
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    7. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
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    9. 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.
    10. Robert E. Hall, 1987. "Consumption," NBER Working Papers 2265, National Bureau of Economic Research, Inc.
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