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Earnings and consumption dynamics: a nonlinear panel data framework

Groupe de lecture

On June 19, 2018

Michal Urdanivia présentera le papier suivant :

Earnings and consumption dynamics: a nonlinear panel data framework / Manuel Arellano, CEMFI, Richard Blundell, University College London, and Stéphane Bonhomme, University of Chicago, Econometrica, Vol. 85, No. 3 (May, 2017), 693–734

http://www.homepages.ucl.ac.uk/~uctp39a/Arellano_Blundell_Bonhomme_January_2017.pdf

Abstract : We develop a new quantile-based panel data framework to study the nature of income persistence and the transmission of income shocks to consumption. Log-earnings are the sum of a general Markovian persistent component and a transitory innovation. The persistence of past shocks to earnings is allowed to vary according to the size and sign of the current shock. Consumption is modeled as an age-dependent nonlinear function of assets, unobservable tastes, and the two earnings components. We establish the nonparametric identification of the nonlinear earnings process and of the consumption policy rule. Exploiting the enhanced consumption and asset data in recent waves of the Panel Study of Income Dynamics, we find that the earnings process features nonlinear persistence and conditional skewness. We confirm these results using population register data from Norway. We then show that the impact of earnings shocks varies substantially across earnings histories, and that this nonlinearity drives heterogeneous consumption responses. The framework provides new empirical measures of partial insurance in which the transmission of income shocks to consumption varies systematically with assets, the level of the shock, and the history of past shocks.

Date

On June 19, 2018
Complément date

12h30 - 13h30

Localisation

Complément lieu

salle de lecture, deuxième étage du Bateg

Submitted on September 22, 2023

Updated on October 16, 2023