The deaton paradox in a long memory context with structural breaks

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

Research output: Contribution to journalArticle

Abstract

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
Volume44
Issue number25
DOIs
Publication statusPublished - 2012 Sep 1

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All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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