A note on the cointegration of consumption, income, and wealth
|Title:||A note on the cointegration of consumption, income, and wealth||Authors:||Rudd, Jeremy
|Permanent link:||http://hdl.handle.net/10197/228||Date:||Nov-2002||Abstract:||Lettau and Ludvigson (2001) argue that a log-linearized approximation to an aggregate budget constraint predicts that log consumption, assets, and labour income will be cointegrated. They conclude that this cointegrating relationship is present in U.S. data, and that the estimated cointegrating residual forecasts future asset growth. This note examines whether the cointegrating relationship suggested by Lettau and Ludvigson's theoretical framework actually exists. We demonstrate that we cannot reject the hypothesis that cointegration is absent from the data once we employ measures of consumption, assets, and labor income that are jointly consistent with an underlying budget constraint. By contrast, Lettau and Ludvigson use a set of variables that do not belong together in an aggregate budget constraint, thereby testing a cointegrating relationship that is not implied by their theory.||Type of material:||Technical Report||Publisher:||Central Bank of Ireland||Copyright (published version):||2002 Copyright Central Bank of Ireland||Subject LCSH:||Cointegration
|Other versions:||http://www.centralbank.ie/data/TechPaperFiles/5RT02.pdf||Language:||en||Status of Item:||Not peer reviewed|
|Appears in Collections:||Economics Research Collection|
Show full item record
Page view(s) 20135
This item is available under the Attribution-NonCommercial-NoDerivs 3.0 Ireland. No item may be reproduced for commercial purposes. For other possible restrictions on use please refer to the publisher's URL where this is made available, or to notes contained in the item itself. Other terms may apply.