Nonlinear Persistence and Partial Insurance: Income and Consumption Dynamics in the PSID
AEA Papers and Proceedings
vol. 108,
May 2018
(pp. 281-86)
Abstract
In this paper we highlight the importance of the PSID in understanding income dynamics and consumption insurance. We explore the nonlinear nature of income shocks and describe a new quantile-based panel data framework for income dynamics. In this approach the persistence of past income shocks is allowed to vary according to the size and sign of the current shock. The model provides a good match with data and we confirm the results on population register data from Norway. Using the enhanced consumption and asset data in the PSID, nonlinear persistence is shown to have key implications for consumption insurance.Citation
Arellano, Manuel, Richard Blundell, and Stephane Bonhomme. 2018. "Nonlinear Persistence and Partial Insurance: Income and Consumption Dynamics in the PSID." AEA Papers and Proceedings, 108: 281-86. DOI: 10.1257/pandp.20181049Additional Materials
JEL Classification
- C81 Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
- D31 Personal Income, Wealth, and Their Distributions
- G22 Insurance; Insurance Companies; Actuarial Studies