Detection and modeling of regression parameter variation across frequencies - With an application to testing the permanent income hypothesis

A simple technique for directly testing the parameters of a time-series reg ression model for instability across frequencies is presented. The method c an be implemented easily in the time domain, so that parameter instability across frequency bands can be conveniently detected and modeled in conjunct ion with other econometric features of the problem at hand, such as simulta neity, cointegration, missing observations, and cross-equation restrictions . The usefulness of the new technique is illustrated with an application to a cointegrated consumption-income regression model, yielding a straightfor ward test of the permanent income hypothesis.