Christiano, Lawrence J. - Federal Reserve Bank of Minneapolis - 1987
Deaton (1986) has noted that if income is a first-order autoregressive process in first differences, then a simple … version of Friedman’s permanent income hypothesis (SPIH) implies that measured U.S. consumption is insufficiently sensitive to … innovations in income. This paper argues that this implication of the SPIH is a consequence of the fact that it ignores the role …