### Abstract

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

Original language | English |
---|---|

Pages (from-to) | 107-117 |

Number of pages | 11 |

Journal | International Review of Economics and Finance |

Volume | 6 |

Issue number | 2 |

Publication status | Published - 1997 |

Externally published | Yes |

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### ASJC Scopus subject areas

- Economics and Econometrics
- Finance

### Cite this

*International Review of Economics and Finance*,

*6*(2), 107-117.

**Consumption, income and cointegration.** / Han, Hsiang Ling; Ogaki, Masao.

Research output: Contribution to journal › Article

*International Review of Economics and Finance*, vol. 6, no. 2, pp. 107-117.

}

TY - JOUR

T1 - Consumption, income and cointegration

AU - Han, Hsiang Ling

AU - Ogaki, Masao

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

UR - http://www.scopus.com/inward/record.url?scp=0031498745&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=0031498745&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:0031498745

VL - 6

SP - 107

EP - 117

JO - International Review of Economics and Finance

JF - International Review of Economics and Finance

SN - 1059-0560

IS - 2

ER -