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A random walk stochastic volatility model for income inequality

Author

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  • Nishino, Haruhisa
  • Kakamu, Kazuhiko

Abstract

This paper develops dynamic models that include income inequality from grouped income data to investigate persistent inequality. After we check that the lognormal distribution is adequately fitted to Japanese income data, by the asymptotic theorem of selected order statistics we construct an approximate linear model, which is extended to dynamic models, including a stochastic volatility (SV) model and a random-walk SV model. We can thus estimate the parameter of inequality directly. Both models are estimated using Japanese income data with the Markov chain Monte Carlo (MCMC) method and a model comparison is made. The SV model is better fitted than the random-walk SV model. We can capture the changing Gini coefficients for Japan using the SV model.

Suggested Citation

  • Nishino, Haruhisa & Kakamu, Kazuhiko, 2015. "A random walk stochastic volatility model for income inequality," Japan and the World Economy, Elsevier, vol. 36(C), pages 21-28.
    • Handle: RePEc:eee:japwor:v:36:y:2015:i:c:p:21-28
    DOI: 10.1016/j.japwor.2015.06.003
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    Cited by:

    1. Hikaru Hasegawa & Kazuhiro Ueda, 2016. "Multidimensional inequality for current status of Japanese private companies’ employees," METRON, Springer;Sapienza Università di Roma, vol. 74(3), pages 357-373, December.
    2. Martin Feldkircher & Kazuhiko Kakamu, 2022. "How does monetary policy affect income inequality in Japan? Evidence from grouped data," Empirical Economics, Springer, vol. 62(5), pages 2307-2327, May.
    3. Sugasawa, Shonosuke & Kobayashi, Genya & Kawakubo, Yuki, 2020. "Estimation and inference for area-wise spatial income distributions from grouped data," Computational Statistics & Data Analysis, Elsevier, vol. 145(C).
    4. Noriyuki Kunimoto & Kazuhiko Kakamu, 2021. "Is Bitcoin really a currency? A viewpoint of a stochastic volatility model," Papers 2111.15351, arXiv.org.

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    More about this item

    Keywords

    Income inequality; Lognormal; Persistence; Selected order statistics; Random-walk stochastic volatility (SV) model;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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