Authors

• Luis A. Gil-Alana (alana@unav.es)
  Facultad de Ciencias Económicas y Empresariales, Universidad de Navarra
• Antonio Moreno (antmoreno@unav.es)
  Facultad de Ciencias Económicas y Empresariales, Universidad de Navarra
• Seonghoon Cho (sc719@yonsei.ac.kr)

Abstract
This paper 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 empirical work. In fact, the I(1) hypothesis is rejected for the income process with monthly data in favor 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.

Classification JEL:C12, C22, C32, E21, E32

Keywords:Consumption Smoothness, Permanent Income Hypothesis, Long Memory, Structural Breaks, Monthly Frequen

Number of Pages:30

Creation Date:2009-04-27

Number:null/09