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Disentangling Age, Cohort and Time Effects in the Additive Model

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  • David J. McKenzie

Abstract

This paper presents a new approach to the old problem of linear dependency of age, cohort and time effects. It is shown that second differences of the effects can be estimated without any normalization restrictions, providing information on the shape of the age-, cohort- and time-effect profiles, and enabling identification of structural breaks. A Wald test is provided to test the popular linear and quadratic specifications against a very general alternative. The method is illustrated through examples which show its ability to detect structural breaks in time effects as a result of the Mexican peso crisis, and to determine whether the age-effect profile in the variance of Taiwanese log consumption is concave or convex. Copyright 2006 Blackwell Publishing Ltd.

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Article provided by Department of Economics, University of Oxford in its journal Oxford Bulletin of Economics and Statistics.

Volume (Year): 68 (2006)
Issue (Month): 4 (08)
Pages: 473-495

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Handle: RePEc:bla:obuest:v:68:y:2006:i:4:p:473-495

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  1. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 102(3), pages 437-67, June.
  2. Verbeek, Marno & Nijman, Theo, 1993. "Minimum MSE estimation of a regression model with fixed effects from a series of cross-sections," Journal of Econometrics, Elsevier, Elsevier, vol. 59(1-2), pages 125-136, September.
  3. James Heckman & Edward Vytlacil, 2000. "Identifying the Role of Cognitive Ability in Explaining the Level of and Change in the Return to Schooling," NBER Working Papers 7820, National Bureau of Economic Research, Inc.
  4. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, Econometric Society, vol. 49(6), pages 1377-98, November.
  5. David J. McKenzie, 2001. "The Household Response to the Mexican Peso Crisis," Working Papers, Stanford University, Department of Economics 01017, Stanford University, Department of Economics.
  6. Jappelli, Tullio, 1995. "The Age-Wealth Profile and the Life-Cycle Hypothesis: A Cohort Analysis with a Time Series of Cross-Sections of Italian Households," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1251, C.E.P.R. Discussion Papers.
  7. Dolores Collado, M., 1997. "Estimating dynamic models from time series of independent cross-sections," Journal of Econometrics, Elsevier, Elsevier, vol. 82(1), pages 37-62.
  8. Denton, Frank T & Mountain, Dean C & Spencer, Byron G, 1999. "Age, Trend, and Cohort Effects in a Macro Model of Canadian Expenditure Patterns," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 17(4), pages 430-43, October.
  9. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, Elsevier, vol. 30(1-2), pages 109-126.
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Cited by:
  1. Tilak Abeysinghe & Jiaying Gu, 2010. "The Cultural Revolution, Stress and Cancer," SCAPE Policy Research Working Paper Series, National University of Singapore, Department of Economics, SCAPE 1001, National University of Singapore, Department of Economics, SCAPE.
  2. Gârleanu, Nicolae & Kogan, Leonid & Panageas, Stavros, 2012. "Displacement risk and asset returns," Journal of Financial Economics, Elsevier, Elsevier, vol. 105(3), pages 491-510.
  3. Geyer, Johannes & Steiner, Viktor, 2010. "Public pensions, changing employment patterns, and the impact of pension reforms across birth cohorts: A microsimulation analysis for Germany," Discussion Papers 2010/8, Free University Berlin, School of Business & Economics.
  4. Coulson, N. Edward & McMillen, Daniel P., 2008. "Estimating time, age and vintage effects in housing prices," Journal of Housing Economics, Elsevier, Elsevier, vol. 17(2), pages 138-151, June.
  5. Gloria M. Rubio & Isidro Soloaga, 2004. "Assessing the Vulnerability of Agricultural Households to Macroeconomic Shocks: Evidence from Mexico," The Electronic Journal of Agricultural and Development Economics, Food and Agriculture Organization of the United Nations, Food and Agriculture Organization of the United Nations, vol. 1(1), pages 45-62.
  6. Rulof P Burger & Ronelle Burger & Laura Rossouw, 2012. "The fertility transition in South Africa: A retrospective panel data analysis," Development Southern Africa, Taylor & Francis Journals, Taylor & Francis Journals, vol. 29(5), pages 738-755, December.
  7. Sakai, Koji & Uesugi, Iichiro & Watanabe, Tsutomu, 2008. "Firm Age and the Evolution of Borrowing Costs: Evidence from Japanese Small Firms," PIE/CIS Discussion Paper, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University 354, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  8. Van Landeghem, Bert, 2012. "A test for the convexity of human well-being over the life cycle: Longitudinal evidence from a 20-year panel," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 81(2), pages 571-582.
  9. Gregori Baetschmann, 2011. "Heterogeneity in the relationship between happiness and age: Evidence from the German Socio-Economic Panel," ECON - Working Papers, Department of Economics - University of Zurich 047, Department of Economics - University of Zurich.
  10. Nicolae Garleanu & Leonid Kogan & Stavros Panageas, 2009. "The Demographics of Innovation and Asset Returns," Working Papers, Becker Friedman Institute for Research In Economics 2009-008, Becker Friedman Institute for Research In Economics.
  11. Nicolae Gârleanu & Leonid Kogan & Stavros Panageas, 2009. "The Demographics of Innovation and Asset Returns," NBER Working Papers 15457, National Bureau of Economic Research, Inc.

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