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Household income uncertainties over three decades

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  • By James Feigenbaum
  • Geng Li

Abstract

We study the trend in household income uncertainty using a novel approach that measures income uncertainty at each future horizon as the variance of forecast errors without imposing specific parametric restrictions on the underlying income shocks. We document a widespread increase in household income uncertainty since the early 1970s that is both statistically and economically significant. For example, our measure of near-future uncertainty in total family non-capital income rose about 40% between 1971 and 2002. This rising uncertainty is likely due to the increase in variances of both persistent and transitory income shocks. A parsimoniously calibrated Aiyagari model is solved to illustrate how rising income uncertainty should have affected aggregate saving.

Suggested Citation

  • By James Feigenbaum & Geng Li, 2015. "Household income uncertainties over three decades," Oxford Economic Papers, Oxford University Press, vol. 67(4), pages 963-986.
    • Handle: RePEc:oup:oxecpp:v:67:y:2015:i:4:p:963-986.
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    File URL: http://hdl.handle.net/10.1093/oep/gpv007
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    Cited by:

    1. Park, Seonyoung & Shin, Donggyun, 2020. "Welfare consequences of rising wage risk in the United States: Self-selection into risky jobs and family labor supply adjustments," Working Paper Series 7967, Victoria University of Wellington, School of Economics and Finance.
    2. Masayuki MORIKAWA, 2017. "Impact of Policy Uncertainty on Consumption and Saving Behavior: Evidence from a survey on consumers," Discussion papers 17075, Research Institute of Economy, Trade and Industry (RIETI).
    3. Nam, Eun-Young & Lee, Kiryoung & Jeon, Yoontae, 2021. "Macroeconomic uncertainty shocks and households’ consumption choice," Journal of Macroeconomics, Elsevier, vol. 68(C).
    4. James Feigenbaum & Geng Li, 2010. "A semiparametric characterization of income uncertainty over the life cycle," Finance and Economics Discussion Series 2010-42, Board of Governors of the Federal Reserve System (U.S.).
    5. Rohde, Nicholas & Tang, Kam Ki & D’Ambrosio, Conchita & Osberg, Lars & Rao, Prasada, 2020. "Welfare-based income insecurity in the us and germany: evidence from harmonized panel data," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 226-243.
    6. Jan Vlachý, 2017. "Analýza daňových systémů středoevropských zemí pomocí statistické simulace [An Analysis of Central European Tax Systems Using Statistical Simulation]," Politická ekonomie, Prague University of Economics and Business, vol. 2017(4), pages 410-423.

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