TY - JOUR

T1 - Consumption, income and cointegration

AU - Han, Hsiang Ling

AU - Ogaki, Masao

N1 - Funding Information:
The authorsw ould like to thank Robert King for providing some of the data used in this paper and for his helpful comments.W e would also like to thank the editor and an anonymous referee for their helpful suggestions.A ll remaining errors are ours. The second authorg ratefully acknowledgesf inancial supportb y the National Science Fundation Grant No. SES-9213930.

PY - 1997

Y1 - 1997

N2 - This paper examines the long-run relationship of consumption and income in the United States. It was shown by King et al. (1991) in a version of the permanent income hypothesis that log levels of consumption and income are cointegrated with a known cointegrating vector (1,-1)′. This implies a restriction that the cointegrating vector, which eliminates the stochastic trends, also eliminates the deterministic trends arising from the drift terms of difference stationary variables. Two different methodologies are used to test this deterministic cointegration restriction in this study. The first methodology is the canonical cointegrating regression proposed by Park (1992). The second methodology is testing stationarity of the difference of log consumption and log income, by assuming the cointegrating vector to be (1,-1)′. Two test statistics for the null hypothesis of stationarity are employed. One is the G(p,q) test proposed by Park and Choi (1988) and the other is proposed by Kwiatkowski et al. (1992). The results of the study indicate that the deterministic cointegration restriction cannot be rejected. JEL: E21, C32

AB - This paper examines the long-run relationship of consumption and income in the United States. It was shown by King et al. (1991) in a version of the permanent income hypothesis that log levels of consumption and income are cointegrated with a known cointegrating vector (1,-1)′. This implies a restriction that the cointegrating vector, which eliminates the stochastic trends, also eliminates the deterministic trends arising from the drift terms of difference stationary variables. Two different methodologies are used to test this deterministic cointegration restriction in this study. The first methodology is the canonical cointegrating regression proposed by Park (1992). The second methodology is testing stationarity of the difference of log consumption and log income, by assuming the cointegrating vector to be (1,-1)′. Two test statistics for the null hypothesis of stationarity are employed. One is the G(p,q) test proposed by Park and Choi (1988) and the other is proposed by Kwiatkowski et al. (1992). The results of the study indicate that the deterministic cointegration restriction cannot be rejected. JEL: E21, C32

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U2 - 10.1016/S1059-0560(97)90019-8

DO - 10.1016/S1059-0560(97)90019-8

M3 - Article

AN - SCOPUS:0031498745

SN - 1059-0560

VL - 6

SP - 107

EP - 117

JO - International Review of Economics and Finance

JF - International Review of Economics and Finance

IS - 2

ER -