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| Author: | Flavin, M. |
| Title: | The excess smoothness of consumption: identification and interpretation |
| Journal: | Review of Economic Studies
1993 : JUL, VOL. 60(3)204, p. 651-666 |
| Index terms: | CONSUMPTION MODELS LIFE CYCLE INCOME |
| Language: | eng |
| Abstract: | Deaton's observation that consumption appears to be "too smooth" is easily reconciled with the notion that consumption exhibits excess sensitivity to current income. The reconciliation invokes the plausible assumption that households forecast on the basis of a larger information set than the econometrician. The empirical case for excess smoothness is strengthened by showing that the innovations in permanent income can be inferred from an autoregression of income and saving, not only under the permanent income hypothesis, but also under the excess sensitivity model. |
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