This paper estimates a general stochastic process for labor income via indirect inference, by jointly using labor income data together with the information embedded in the dynamics of individual consumption. We extend earlier work in several directions. First, we do not restrict income shocks to follow a random walk, an assumption that has been made in previous studies that use consumption data to estimate income risk (Blundell and Preston (1998), Blundell, Pistaferri and Preston (2005) among others). Second, we use an auxiliary model for the indirect inference method that captures the rich dynamics of household consumption. To this end, we impute household consumption in PSID using the procedure developed in Blundell, Pistaferri and Preston (2005). Third, we estimate a general process that allows for heterogeneity in income growth rates. Thus, our approach allows us to bring both consumption and income data to distinguish between two alternative views of the income process: the random walk model (as in MaCurdy (1982), Abowd and Card (1989)) versus the profile heterogeneity model (as in Lillard and Weiss (1979), Baker (1997), Guvenen (2005))
Download Info
To our knowledge, this item is not available for
download. To find whether it is available, there are three
options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page
whether it is in fact available.
3. Perform a search for a similarly titled item that would be
available.
Publisher Info
Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
500.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:500
Contact details of provider: Postal: Society for Economic Dynamics Anne Stubing CV Starr Center for Applied Economics 269 Mercer Street, Room 303 New York University New York, NY 10003 Fax: 1-860-486-4463 Email: Web page: http://www.EconomicDynamics.org/society.htm More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: (Christian Zimmermann).