Trends, Random Walks, and Tests of the Permanent Income Hypothesis
Recent studies ﬁnd that consumption is excessively sensitive to income. These studies assume that income is stationary around a deterministic trend. The data, however, do not reject the hypothesis that disposable income is a random walk with drift. If income is indeed a random walk, then the standard testing procedure is greatly biased toward ﬁnding excess sensitivity. Moreover, if income is borderline stationary, this procedure is also seriously biased.
Mankiw, N. Gregory and Shapiro, Matthew D., "Trends, Random Walks, and Tests of the Permanent Income Hypothesis" (1984). Cowles Foundation Discussion Papers. 965.