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On the Covariance Structure of Changes in Consumption in the Health and Retirement Study

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  • Michael Perry

    (University of Michigan)

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    Abstract

    Using generalized method of moments on the covariance matrix, I test three models of consumption change on constructed consumption data from the Health and Retirement Study. Meant as a first step towards estimating life-cycle effects of subjective survival probabilities on consumption profiles, this study finds that the model that best describes the consumption data is a pure measurement error model. This is likely due to the large amount of error introduced in the process of inferring consumption from other financial data. This result casts significant doubt on the use of this data in estimating a life-cycle model.

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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp112.pdf
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    Bibliographic Info

    Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp112.

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    Length: 28 pages
    Date of creation: Jan 2006
    Date of revision:
    Handle: RePEc:mrr:papers:wp112

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    1. John M. Abowd & David Card, 1986. "On the Covariance Structure of Earnings and Hours Changes," NBER Working Papers 1832, National Bureau of Economic Research, Inc.
    2. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
    3. Kuehlwein, Michael, 1993. "Life-Cycle and Altruistic Theories of Saving with Lifetime Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 38-47, February.
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