Empirical Evidence
Robert Hall (1978) estimated the Euler equation in order to find evidence of a random walk in consumption. The data used are US National Income and Product Accounts (NIPA) quarterly from 1948 to 1977. For the analysis the author does not consider the consumption of durable goods. Although Hall argues that he finds some evidence of consumption smoothing, he does so using a modified version. There are also some econometric concerns about his findings.
Wilcox (1989) argue that liquidity constraint is the reason why consumption smoothing does not show up in the data. Zeldes (1989) follows the same argument and finds that a poor household's consumption is correlated with contemporaneous income, while a rich household's consumption is not.
Read more about this topic: Consumption Smoothing
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