log consumption, assets, and labour income will be cointegrated. They conclude that this cointegrating relationship is …, assets, and labor income that are jointly consistent with an underlying budget constraint. By contrast, Lettau and Ludvigson …

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 …

the permanent income model that are consistent with this fact. In both variants, we assume agents make decisions on a … income. According to the second variant of the permanent income model, serial persistence in measured consumption reflects … like a martingale. We find little evidence against this variance of the permanent income model. It is difficult, on the …