Publication Date


Degree Type

Master of Arts


The author of this thesis examines the stochastic behavior of durables consumption in the rational expectations/permanent income hypothesis framework. The testing in this paper parallels the studies conducted by other researchers, who basing their work mainly on quarterly data rejected the frictionless rational expectations/permanent income hypothesis. The distinctive feature of this thesis is that the models are examined using monthly instead of quarterly data. The results of the estimation are compared to the results based on quarterly data. The results show that estimates obtained using monthly data seem to be more consistent with the frictionless rational expectations/permanent income hypothesis than the estimates from quarterly data. Then, by using two subsets of the monthly data representing the first and the last twelve years of a 37 year period, the models are reexamined to explore the possibility of change in the stochastic behavior of personal expenditures on durable goods over time. This results suggest a change in influence of liquidity constraints on the time series behavior of durable goods consumption over the last four decades.



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