This paper shows that U.S. monthly consumption data are consistent with the permanent income hypothesis when transitory consumption and temporal aggregation effects are jointly incorporated into the model. In this case, a more appropriate representation for the permanent income hypothesis is the integrated-moving average IMA(1, 1) process with a negative MA coefficient, rather than the repeatedly rejected random walk process. Restrictions on the relative importance of transitory and permanent consumption are also discussed, with and without measurement errors. Copyright 1993 by MIT Press.

While quarterly consumption data are known to be well fitted by an integrated first-order moving average process--IMA(1, 1)--with a positive coefficient, monthly consumption data are found to be well fitted by an IMA(1, 1) process with a negative coefficient. Without measurement errors, one implication is that, if R. Hall's (1978) random walk model of consumption behavior is true, then the agents' decision interval must be greater than a month. (In particular, this evidence rejects the possibility of continuously taken decisions.) Another implication is that, if consumption decisions are generated by an IMA(1, 1) process at intervals shorter than a month, the coefficient must be negative. The paper also discusses the case of monthly data corrupted by measurement errors. Copyright 1989 by MIT Press.