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TESTING THE PERMANENT-INCOME/LIFE-CYCLE HYPOTHESIS WITH AGGREGATE DATA

Published online by Cambridge University Press:  01 September 1998

John J. Seater
John J. Seater
Affiliation:
North Carolina State University
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Abstract

The aggregate implications of the permanent-income/life-cycle hypothesis (PILCH) are derived rigorously. Virtually all empirical rejections of PILCH based on aggregated data are shown to result from misspecifications or from characteristics of aggregate data that have been overlooked. Valid aggregate tests are proposed. Those based on a properly formulated aggregate consumption function may be superior to those based on Euler-equation methods.

Keywords

Permanent-Income HypothesisAggregate Data
Type
Research Article
Information
Macroeconomic Dynamics , Volume 2 , Issue 3 , September 1998 , pp. 401 - 425
Copyright
© 1998 Cambridge University Press

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