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Persistence of income shocks and consumption inequality: A case in Japan

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  • Tomoaki Yamada

    ()
    (Meiji University)

Abstract

The present study investigate the relationship between the persistence of uninsurable income shocks and consumption inequality over a household's life cycle in Japan. Using a life cycle model with incomplete asset markets and calibrated parameters for the Japanese economy, we quantitatively show that moderate persistence of shocks generate a nonlinear consumption inequality profile over the life cycle. The moderate persistence of shocks well replicates the pattern of consumption inequality in Japan.

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File URL: http://www.accessecon.com/Pubs/EB/2009/Volume29/EB-09-V29-I4-P36.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 29 (2009)
Issue (Month): 4 ()
Pages: 2822-2831

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Handle: RePEc:ebl:ecbull:eb-09-00615

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Keywords: Uninsurable income risk; Consumption inequality;

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  1. Abe, Naohito & Yamada, Tomoaki, 2009. "Nonlinear income variance profiles and consumption inequality over the life cycle," Journal of the Japanese and International Economies, Elsevier, vol. 23(3), pages 344-366, September.
  2. Ohtake, Fumio & Saito, Makoto, 1998. "Population Aging and Consumption Inequality in Japan," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 44(3), pages 361-81, September.
  3. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, Elsevier, vol. 18(1), pages 83-114, January.
  4. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(3), pages 695-717, June.
  5. Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, Elsevier, vol. 20(2), pages 177-181.
  6. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 1887-1921, December.
  7. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers, Institute for Fiscal Studies W97/15, Institute for Fiscal Studies.
  8. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2000. "Consumption and Risk Sharing Over the Life Cycle," NBER Working Papers 7995, National Bureau of Economic Research, Inc.
  9. 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.
  10. Fatih Guvenen, 2006. "Learning your earning: are labor income shocks really very persistent?," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 145, Federal Reserve Bank of Minneapolis.
  11. Lillard, Lee A & Weiss, Yoram, 1979. "Components of Variation in Panel Earnings Data: American Scientists, 1960-70," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 437-54, March.
  12. Gary D. Hansen & Selahattin Imrohoroglu, 2006. "Consumption Over the Life Cycle: The Role of Annuities," NBER Working Papers 12341, National Bureau of Economic Research, Inc.
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