02401cam a22002537 4500001000600000003000500006005001700011008004100028100002800069245013100097260006600228490004100294500001600335520139100351530006101742538007201803538003601875700002401911700002101935710004201956830007601998856003702074856003602111w2209NBER20150426123714.0150426s1987 mau||||fs|||| 000 0 eng d1 aChristiano, Lawrence J.14aThe Permanent Income Hypothesis Revisitedh[electronic resource] /cLawrence J. Christiano, Martin Eichenbaum, David Marshall. aCambridge, Mass.bNational Bureau of Economic Researchc1987.1 aNBER working paper seriesvno. w2209 aMarch 1987.3 aThis paper investigates whether there are simple versions of the permanent income hypothesis which are consistent with the aggregate U.S. consumption and output data. Our analysis is conducted within the confines of a simple dynamic general equilibrium model of aggregate real output, investment, hours of work and consumption. We study the quantitative importance of two perturbations to the version of our model which predicts that observed consumption follows a random walk: (i) changing the production technology specification which rationalizes the random walk result, and (ii) replacing the assumption that agents' decision intervals coincide with the data sampling interval with the assumption that agents make decisions on a continuous time basis. We find substantially less evidence against the continuous time models than against their discrete time counterparts. In fact neither of the two continuous time models can be rejected at conventional significance levels. The continuous time models outperform their discrete time counterparts primarily because they explicitly account for the fact that the data used to test the models are tine averaged measures of the underlying unobserved point-in-time variables. The net result is that they are better able to accommodate the degree of serial correlation present in the first difference of observed per capita U.S. consumption. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aEichenbaum, Martin.1 aMarshall, David.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w2209.4 uhttp://www.nber.org/papers/w220941uhttp://dx.doi.org/10.3386/w2209