ARE OUR DATA RELEVANT TO THE THEORY - THE CASE OF AGGREGATE CONSUMPTION

Personal consumption expenditures (PCE) in the National Income and Pro duct Accounts are often used to investigate whether the time series pr operties of consumption are consistent with the permanent-income/life- cycle hypotheses. In this article, I address the issue of the general quality of the PCE data and its definitional consistency with the typi cal model of the intertemporal allocation of consumption. I find that, in terms of the population coverage and the consumption concept, the raw PCE data are unsuitable for the analysis of the permanent-income/l ife-cycle hypotheses. More fundamentally, adjustments to the data to p rovide greater consistency with the theory alter critical conclusions concerning the time series properties of consumption.