The Insensitivity of Consumption to News About Income / Kenneth D. West.

Format:

Book

Author/Creator:

West, Kenneth D.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w2252.

NBER working paper series no. w2252

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1987.

Summary:

This paper uses a variance bounds test to see whether consumption is too sensitive to news about income to be consistent with a standard permanent income model, under the maintained hypothesis that income has a unit root. It is found that, if anything, consumption is less sensitive than the model would predict. This implication is robust to the representative consumer having private information about his future income that the econometrician does not have, to wealth shocks, and to transitory consumption. This suggests the importance in future research on the model of allowing for factors that tend to make consumption smooth.

Notes:

Print version record

May 1987.