The permanent income hypothesis: Evidence from the consumer expenditure survey

Consumption Euler relations are estimated with data from the 1986-1991 US Consumer Expenditure Survey without creating a synthetic panel. The stochastic implications of the permanent income hypothesis generally are not rejected, and there is little evidence of liquidity-constrained or rule-of-thumb behavior. The results are robust with respect to consumption category, changes in sample, and choice of instruments. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: D12; E21.