Journal Article The Distance Function in Consumer Behaviour with Applications to Index Numbers and Optimal Taxation Get access Angus Deaton Angus Deaton University of Bristol Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 46, Issue 3, July 1979, Pages 391–405, https://doi.org/10.2307/2297009 Published: 01 July 1979 Article history Received: 01 May 1977 Accepted: 01 July 1978 Published: 01 July 1979

Gwyn Aneuryn-Evans, Angus Deaton; Testing Linear versus Logarithmic Regression Models, The Review of Economic Studies, Volume 47, Issue 1, 1 January 1980, Pages

This paper applies the standard rational expectations competitive storage model to the study of thirteen commodities. It explains the skewness, and the existence of rare but violent explosions in prices, coupled with a high degree of price autocorrelation in more normal times. A central feature of the model is the explicit recognition of the fact that it is impossible for the market as a whole to carry negative inventories, and this introduces an essential non-linearity which carries through into non-linearity of the predicted commodity price series. For most of the thirteen commodity prices, the behaviour of prices from one year to the next conforms to the predictions of the theory about conditional expectations and conditional variances. However, given the non-linearity both of the model and of the actual prices, such conformity is not enough to ensure that the theory yields a complete account of the data. In particular, the analysis does not yield a fully satisfactory explanation for the high autocorrelation observed in the data.

For thirty years it has been accepted that consumption is smooth because permanent income is smoother than measured income. This paper considers the evidence for the contrary position, that permanent income is in fact less smooth than measured income, so that the smoothness of consumption cannot be straightforwardly explained by permanent income theory. The paper argues that in postwar U.S. quarterly data, consumption is smooth because it responds with a lag to changes in income.