| Trends, Random Walks, and Tests of the Permanent Income Hypothesis | |||||||
Abstract | |||||||
| Recent studies find that consumption is excessively sensitive to income. These studies assume that income is stationary around a deterministic trend. The data, however, do not reject the hypothesis that disposable income is a random walk with drift. If income is indeed a random walk, then the standard testing procedure is greatly biased toward finding excess sensitivity. Moreover, if income is borderline stationary, this procedure is also seriously biased.. Non-stationary time series, detrending, permanent income hypothesis, small sample bias | |||||||
Publication details | |||||||
| |||||||
Publications citing this publication (2) | |||||||
| |||||||