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Distangling Age, Cohort and Time Effects in the Additive Model

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David McKenzie

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Abstract

July 2002

This paper presents a new approach to the old problem of linear dependency of age, cohort and time effects. It is shown that second differences of the effects can be estimated without any normalization restrictions, providing information on the shape of the age, cohort and time effect profiles, and enabling identification of structural breaks. A Wald test is provided to test the popular linear and quadratic specifications against a very general alternative. First differenced and level effects can then be consistently estimated with a small number of additional normalizing assumptions. Moreover, it is demonstrated that coefficients on additional exogenous regressors can be consistently estimated in this framework without the need for normalizing assumptions.

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 02009.

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Date of creation: Jul 2002
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Handle: RePEc:wop:stanec:02009

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  1. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-67, June. [Downloadable!] (restricted)
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  2. Tullio Jappelli, 1999. "The Age-Wealth Profile and The Life-Cycle Hypothesis: a Cohort Analysis with a Time Series of Cross-Sections of Italian Households," CSEF Working Papers 14, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy. [Downloadable!]
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  3. David J. McKenzie, 2001. "The Household Response to the Mexican Peso Crisis," Working Papers 01017, Stanford University, Department of Economics. [Downloadable!]
  4. Deaton, Angus, 1985. "Panel data from time series of cross-sections," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 109-126. [Downloadable!] (restricted)
  5. Denton, Frank T & Mountain, Dean C & Spencer, Byron G, 1999. "Age, Trend, and Cohort Effects in a Macro Model of Canadian Expenditure Patterns," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 430-43, October.
  6. Verbeek, Marno & Nijman, Theo, 1993. "Minimum MSE estimation of a regression model with fixed effects from a series of cross-sections," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 125-136, September. [Downloadable!] (restricted)
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  7. Hausman, Jerry A. & Taylor, William E., 1981. "Panel data and unobservable individual effects," Journal of Econometrics, Elsevier, vol. 16(1), pages 155-155, May. [Downloadable!] (restricted)
  8. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-98, November. [Downloadable!] (restricted)
  9. Dolores Collado, M., 1997. "Estimating dynamic models from time series of independent cross-sections," Journal of Econometrics, Elsevier, vol. 82(1), pages 37-62. [Downloadable!] (restricted)
  10. James Heckman & Edward Vytlacil, 2001. "Identifying The Role Of Cognitive Ability In Explaining The Level Of And Change In The Return To Schooling," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 1-12, February. [Downloadable!] (restricted)
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  1. Rubio, Gloria M. & Soloaga, Isidro, 2004. "Assessing the Vulnerability of Agricultural Households to Macroeconomic Shocks: Evidence from Mexico," eJADE: electronic Journal of Agricultural and Development Economics, Food and Agriculture Organization, Agricultural and Development Economics Division, vol. 1(1). [Downloadable!]
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