Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption

21 Pages Posted: 29 Jun 2004 Last revised: 19 Jul 2010

See all articles by Jeffrey A. Miron

Jeffrey A. Miron

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 1986

Abstract

Recent empirical work has found that both aggregate and micro data reject the rational expectations version of the Life Cycle-Permanent Income model of consumption. This paper examines a new possible explanation for the rejections: the treatment of seasonal fluctuations. There are substantial seasonal fluctuations in consumption purchases, but no previous paper has determined whether these fluctuations are consistent with the Life Cycle-Permanent Income model. The results in this paper show that when the seasonal fluctuations in consumption purchases are included in an analysis of the Life Cycle-Permanent Income model there is no evidence in the aggregate data against the model. The estimates of the parameters of agents' utility functions obtained here are plausible, and the data do not reject the overidentifying restrictions on the model.

Suggested Citation

Miron, Jeffrey A., Seasonal Fluctuations and the Life Cycle-Permanent Income Model of Consumption (February 1986). NBER Working Paper No. w1845. Available at SSRN: https://ssrn.com/abstract=341811

Jeffrey A. Miron (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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