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Testing the life-cycle permanent income hypothesis using intra-year data for Sweden

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  • Leong, Kenneth
  • McAleer, Michael

Abstract

Real non-durable consumption expenditure for many countries typically exhibits substantial seasonal fluctuations. In this paper, two seasonal models that are consistent with an extension of the rational expectations life-cycle permanent income hypothesis are evaluated using quarterly seasonally unadjusted Swedish consumption expenditure. One model is a first-order periodically integrated autoregressive model. Formal procedures for periodic integration are used to test this hypothesis. The second model captures seasonal habit persistence in the form of a periodic seasonal ARIMA model. It is found that both models fail to capture adequately the dynamics in Swedish consumption expenditure, which suggests a rejection of the rational expectations life-cycle permanent income hypothesis.

Suggested Citation

  • Leong, Kenneth & McAleer, Michael, 1999. "Testing the life-cycle permanent income hypothesis using intra-year data for Sweden," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 48(4), pages 551-560.
    • Handle: RePEc:eee:matcom:v:48:y:1999:i:4:p:551-560
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    References listed on IDEAS

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    1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-987, December.
    2. Hylleberg, S. & Engle, R. F. & Granger, C. W. J. & Yoo, B. S., 1990. "Seasonal integration and cointegration," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 215-238.
    3. Franses, Philip Hans, 1996. "Periodicity and Stochastic Trends in Economic Time Series," OUP Catalogue, Oxford University Press, number 9780198774549.
    4. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444606, October.
    5. Boswijk, H. Peter & Franses, Philip Hans & Haldrup, Niels, 1997. "Multiple unit roots in periodic autoregression," Journal of Econometrics, Elsevier, vol. 80(1), pages 167-193, September.
    6. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444590, October.
    7. Osborn, Denise R, 1988. "Seasonality and Habit Persistence in a Life Cycle Model of Consumptio n," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 255-266, October-D.
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    Cited by:

    1. Magda Kandil & Ida Mirzaie, 2006. "Consumption and macroeconomic policies: Theory and evidence from developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(4), pages 469-491.

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