TESTING THE PERMANENT-INCOME LIFE-CYCLE HYPOTHESIS WITH AGGREGATE DATA/

The aggregate implications of the permanent-income/life-cycle hypothes is (PILCH) are derived rigorously. Virtually all empirical rejections of PILCH based on aggregated data are shown to result from misspecific ations or from characteristics of aggregate data that have been overlo oked. Valid aggregate tests are proposed. Those based on a properly fo rmulated aggregate consumption function may be superior to those based on Euler-equation methods.