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In Search of Lost Time Aggregation

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Abstract

In 1960, Working noted that time aggregation of a random walk induces serial correlation in the first difference that is not present in the original series. This important contribution has been overlooked in a recent literature analyzing income and consumption in panel data. I examine Blundell, Pistaferri and Preston (2008) as an important example for which time aggregation has quantitatively large effects. Using new techniques to correct for the problem, I find the estimate for the partial insurance to transitory shocks, originally estimated to be 0.05, increases to 0.24. This larger estimate resolves the dissonance between the low partial consumption insurance estimates of Blundell, Pistaferri and Preston (2008) and the high marginal propensities to consume found in the natural experiment literature.

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  • Edmund Crawley, 2019. "In Search of Lost Time Aggregation," Finance and Economics Discussion Series 2019-075, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2019-75
    DOI: 10.17016/FEDS.2019.075
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    Cited by:

    1. Edmund Crawley & Andreas Kuchler, 2020. "Consumption Heterogeneity: Micro Drivers and Macro Implications," Finance and Economics Discussion Series 2020-005, Board of Governors of the Federal Reserve System (U.S.).
    2. Theloudis, Alexandros, 2021. "Consumption inequality across heterogeneous families," European Economic Review, Elsevier, vol. 136(C).
    3. Yunho Cho & James Morley & Aarti Singh, 2024. "Did marginal propensities to consume change with the housing boom and bust?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(1), pages 174-199, January.
    4. , 2020. "Why Does Consumption Fluctuate in Old Age and How Should the Government Insure it?," Opportunity and Inclusive Growth Institute Working Papers 40, Federal Reserve Bank of Minneapolis.
    5. Edmund Crawley & Martin Holm & Håkon Tretvoll, 2022. "A Parsimonious Model of Idiosyncratic Income," Finance and Economics Discussion Series 2022-026, Board of Governors of the Federal Reserve System (U.S.).
    6. Hong, Seungki, 2023. "MPCs in an emerging economy: Evidence from Peru," Journal of International Economics, Elsevier, vol. 140(C).
    7. Da Zhao & Jingyuan Guo & Hong Zou & Ze Song, 2022. "From Price to Gain: The Evolution of Household Income Volatility and Consumption Insurance in Urban China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(6), pages 113-136, November.

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    More about this item

    Keywords

    Consumption; Income; Time Aggregation;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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