Improving Models of Income Dynamics using Cross-Section-Information
Based on a relative entropy approach, this paper proposes a method to estimate or update transition matrices using just cross-sectional observations at two points in time. The method is then applied to explain the development of the US income distribution. Starting from three hypothesized transition matrices and a transition matrix estimated from the PSID data, we show how these matrices must be adjusted in the light of the cross-sectional information. Finally, we explore the consequences of these updated transition matrices for the future development of the US income distribution.
Volume (Year): 144 (2008)
Issue (Month): II (June)
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- Adelman, Irma & Morley, Samuel & Schenzler, Christoph & Warning, Matthew, 1994. "Estimating income mobility from census data," Journal of Policy Modeling, Elsevier, vol. 16(2), pages 187-213, April.
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- Robert Aebi & Klaus Neusser & Peter Steiner, 2006.
"A Large Deviation Approach to the Measurement of Mobility,"
Swiss Journal of Economics and Statistics (SJES),
Swiss Society of Economics and Statistics (SSES), vol. 142(II), pages 195-222, June.
- Robert Aebi & Klaus Neusser & Peter Steiner, 2002. "A Large Deviation Approach to the Measurement of Mobility," Diskussionsschriften dp0220, Universitaet Bern, Departement Volkswirtschaft.
- Robert Aebi & Klaus Neusser & Peter Steiner, 2005. "A Large Deviation Approach to the Measurement of Mobility," Diskussionsschriften dp0518, Universitaet Bern, Departement Volkswirtschaft.
- Tauchen, George, 1986. "Finite state markov-chain approximations to univariate and vector autoregressions," Economics Letters, Elsevier, vol. 20(2), pages 177-181.
- Robert Aebi & Klaus Neusser & Peter Steiner, 1999. "Evaluating Theories of Income Dynamics: A Probabilistic Approach," Diskussionsschriften dp9905, Universitaet Bern, Departement Volkswirtschaft.
- Golan, Amos & Judge, George G. & Miller, Douglas, 1996. "Maximum Entropy Econometrics," Staff General Research Papers Archive 1488, Iowa State University, Department of Economics. Full references (including those not matched with items on IDEAS)
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