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Subjective Income Expectations and Income Risk

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Author Info

  • Ramos, Xavi

    ()
    (Universitat Autònoma de Barcelona)

  • Schluter, Christian

    ()
    (University of Southampton)

Abstract

In the context of income dynamics, we investigate whether aspects of agents’ superior information relative to the econometrician’s limited information are captured in subjective expectations data. It is natural, for instance, to assume that the econometrician cannot observe idiosyncratic shocks to both permanent and transitory components of income. In this case perceptions of risk differ between agents and the econometrician. Our tests are based on panel data elicited yearly from British households. We find evidence of superior information consistent with standard income modelling.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1950.

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Length: 22 pages
Date of creation: Jan 2006
Date of revision:
Handle: RePEc:iza:izadps:dp1950

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Keywords: subjective expectation reports; income risk; limited information variances;

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References

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  1. Costas Meghir & Luigi Pistaferri, 2001. "Income variance dynamics and heterogenity," IFS Working Papers W01/07, Institute for Fiscal Studies.
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  8. Cappellari, Lorenzo, 2000. "The dynamics and inequality of Italian male earnings: permanent changes or transitory fluctuations?," ISER Working Paper Series 2000-41, Institute for Social and Economic Research.
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  15. Das, J.W.M. & Soest, A.H.O. van, 2000. "Expected Versus Realized Income Changes: A Test of the Rational Expectation Hypothesis," Discussion Paper 2000-105, Tilburg University, Center for Economic Research.
  16. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April.
  17. Luigi Pistaferri, 1998. "Superior Information, Income Shocks and the Permanent Income Hypothesis," CSEF Working Papers 07, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
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Cited by:
  1. Sanghamitra Bandyopadhyay & Frank Cowell, 2007. "Modelling vulnerability in the UK," LSE Research Online Documents on Economics 2692, London School of Economics and Political Science, LSE Library.

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