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The age-time-cohort problem and the identification of structural parameters in life-cylce models

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  • Sam Schulhofer-Wohl

Abstract

The standard approach to estimating structural parameters in life-cycle models imposes sufficient assumptions on the data to identify the “age profile” of outcomes, then chooses model parameters so that the model’s age profile matches this empirical age profile. I show that the standard approach is both incorrect and unnecessary: incorrect, because it generally produces inconsistent estimators of the structural parameters, and unnecessary, because consistent estimators can be obtained under weaker assumptions. I derive an estimation method that avoids the problems of the standard approach. I illustrate the method’s benefits analytically in a simple model of consumption inequality and numerically by reestimating the classic life-cycle consumption model of Gourinchas and Parker (2002).

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Working Papers with number 707.

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Date of creation: 2013
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Handle: RePEc:fip:fedmwp:707

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Keywords: Demography;

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  1. Sam Schulhofer-Wohl & Yang Yang, 2011. "Modeling the evolution of age and cohort effects in social research," Staff Report 461, Federal Reserve Bank of Minneapolis.
  2. Mariacristina De Nardi & Eric French & John Bailey Jones, 2009. "Why do the elderly save? the role of medical expenses," Working Paper Series WP-09-02, Federal Reserve Bank of Chicago.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The age-time-cohort problem and the identification of structural parameters in life-cylce models
    by Christian Zimmermann in NEP-DGE blog on 2013-07-22 03:53:16

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