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Measuring high-frequency income risk from low-frequency data

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  • Klein, Paul
  • Telyukova, Irina A.

Abstract

We estimate a monthly income process using annual longitudinal household-level income data, in order to understand the nature of income risk faced by households at high frequency, and to provide an input for models that wish to study household decision-making at higher frequency than available data. At both frequencies, idiosyncratic earnings shocks have a highly persistent component. At monthly frequency, transitory shocks account for most of the earnings variance; at annual frequency, the persistent component is dominant. We apply our estimates in the context of a standard incomplete-market model, and show that decision-making frequency per se makes a small difference.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 3 ()
Pages: 535-542

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:3:p:535-542

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Idiosyncratic income uncertainty; Frequency; Estimation;

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References

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  9. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 609-633, April.
  10. Tony Smith & M. Fatih Guvenen, 2007. "Inferring Labor Income Risk from Economic Choices: An Indirect Inference Approach," 2007 Meeting Papers 1024, Society for Economic Dynamics.
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