Imperfect information and consumption in the United States and the United Kingdom

Pischke (1995) has argued that imperfect information may account for the fa ilure of Hall's permanent income hypothesis to explain the behaviour of agg regate consumption. We identify the restrictions that Pischke's theory plac es on the dynamics of aggregate consumption and test them using quarterly d ata for the United Kingdom and United Stales. Our results suggest that, whi le Pischke's model explains some features of the data which the Hall model cannot, it is formally rejected.