@article{Ostregaard:275632,
      recid = {275632},
      author = {Ostregaard, Charlotte and Sorensen, Bent E. and Yosha,  Oved},
      title = {Permanent Income, Consumption, and Aggregate Constraints:  Evidence from U.S. States},
      address = {1998-01},
      number = {2123-2018-4995},
      series = {Working Paper No. 2-98},
      pages = {54},
      year = {1998},
      abstract = {We remove the aggregate US-wide component in US state  level disposable income and consumption and find that  state-specific consumption exhibits substantially less  excess sensitivity to lagged state-specific disposable  income than if the aggregate component is not controlled  for. This is evidence that excess sensitivity of  consumption in aggregate US data is driven to a large  extent by US-wide effects since, in the aggregate, US net  imports and investment do not adjust quickly to  fluctuations in consumption demand. Ordering states by the  persistence of income shocks, we find that removal of the  aggregate component from the state level data reduces  excess sensitivity for all states by the same amount and  that the excess sensitivity of consumption is greater in  states with more persistent income shocks. We also find  that state-specific disposable income and consumption  exhibit excess smoothness in the sense of Campbell and  Deaton (1989), namely, current state-specific consumption  is not sufficiently sensitive to current state-specific  income; in particular for positive shocks. Finally, we  study patterns of consumption smoothing via bank savings  deposits and loans. Our results point to credit market  imperfections as the most plausible explanation for excess  smoothness and the remaining excess sensitivity.},
      url = {http://ageconsearch.umn.edu/record/275632},
      doi = {https://doi.org/10.22004/ag.econ.275632},
}