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Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption

  • Jeffrey A. Miron

Recent empirical work has found that both aggregate and micro data reject the rational expectations version of the Life Cycle-Permanent Income model of consumption. This paper examines a new possible explanation for the rejections: the treatment of seasonal fluctuations. There are substantial seasonal fluctuations in consumption purchases, but no previous paper has determined whether these fluctuations are consistent with the Life Cycle-Permanent Income model. The results in this paper show that when the seasonal fluctuations in consumption purchases are included in an analysis of the Life Cycle-Permanent Income model there is no evidence in the aggregate data against the model. The estimates of the parameters of agents' utility functions obtained here are plausible, and the data do not reject the overidentifying restrictions on the model.

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File URL: http://www.nber.org/papers/w1845.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1845.

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Date of creation: Feb 1986
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Publication status: published as Miron, Jeffrey A. "Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption," Journal of Political Economy, Vol. 94, No. 6, (1986), pp. 1258-1279.
Handle: RePEc:nbr:nberwo:1845
Note: ME
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  7. Fumio Hayashi, 1979. "The Permanent Income Hypothesis: Estimation and Testing," Discussion Papers 484, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Mankiw, N. Gregory, 1982. "Hall's consumption hypothesis and durable goods," Journal of Monetary Economics, Elsevier, vol. 10(3), pages 417-425.
  9. Eichenbaum, Martin S & Hansen, Lars Peter & Singleton, Kenneth J, 1988. "A Time Series Analysis of Representative Agent Models of Consumption and Leisure Choice under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 103(1), pages 51-78, February.
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  17. Sargent, Thomas J, 1978. "Rational Expectations, Econometric Exogeneity, and Consumption," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 673-700, August.
  18. Robert E. Hall & Frederic S. Mishkin, 1980. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households," NBER Working Papers 0505, National Bureau of Economic Research, Inc.
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