NBER Publications by Aloysius Siow

This paper addresses two questions. First, what are the key factors that affect a consumer's lifetime budget constraint and how do they evolve over the lifecycle? Second, how do consumers respond to changes in these factors? We examine the permanent income hypothesis and the Keynesian consumption model using a dynamic factor model of consumption, hours, wages, unemployment, and income. We show that a quarterly dynamic factor model with restrictions on the lag structure nay be used with annual panel data to account for the fact that in many micro panel data sets the variables relevant to a study are measured at different time intervals and/or are aggregates for the calendar year. By using several income indicators we are able to extend the panel data studies of Hall and Mishkin and Bernanke...

This paper tests the rational expectations lifecycle model of consumption against (1) a simple Keynesian model and (ii) the rational expectations lifecycle model with imperfect capital markets. The tests are based upon the relative responsiveness of consumption to income changes which can be predicted from past information and income changes which cannot be predicted. Since there is strong evidence that panel data contains substantial measurement error, the tests are especially constructed to allow for measurement error in the income process. They also allow for more general income processes than have been considered to date in the literature. The results reject the Keynesian model and generally support the lifecycle model, although the tests are not sufficiently precise to rule out the po...