The deaton paradox in a long memory context with structural breaks

Luis A. Gil-Alana, Antonio Moreno, Seonghoon Cho

Research output: Contribution to journalArticlepeer-review


This article contributes to the Permanent Income Hypothesis (PIH) and excess consumption smoothness debate in the context of fractional integration. We show that the excess consumption smoothness result is a consequence of the quarterly data frequency commonly employed in the empirical work. In fact, the I(1) hypothesis is rejected for the income process with monthly data in favour of a fractional integration order lower than 1. Moreover, if a structural break is taken into account, we observe a substantial reduction in the degree of consumption smoothness, especially after the break found in 1975.

Original languageEnglish
Pages (from-to)3309-3322
Number of pages14
JournalApplied Economics
Issue number25
Publication statusPublished - 2012 Sep

Bibliographical note

Funding Information:
L.A. Gil-Alana and A. Moreno gratefully acknowledge the financial support from the Spanish Ministerio de Ciencia y Tecnologia (ECO2008-03035, ECO2009-11151 ECON Y FINANZAS, respectively). Comments from the Editor and from two anonymous referees are gratefully acknowledged.

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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