IDEAS home Printed from https://ideas.repec.org/a/tpr/restat/v92y2010i3p536-548.html
   My bibliography  Save this article

For Better, For Worse: Intrahousehold Risk-Sharing over the Business Cycle

Author

Listed:
  • Stephen H. Shore

    (Johns Hopkins University)

Abstract

Marriage allows couples to diversify labor income risks and dynamically coordinate labor supply decisions in response to shocks. This paper argues that these risk-sharing benefits of marriage are countercyclical; husbands' and wives' income changes are more positively correlated when the economy is growing rapidly. As a result, while individuals face more idiosyncratic income risk in bad times than in good, households do not. I exploit variation in the cross-sectional covariance of husbands' and wives' incomes to infer the covariance of past income changes. Couples with marriages spanning periods of greater economic expansion have more positively correlated incomes in the cross-section. © 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Stephen H. Shore, 2010. "For Better, For Worse: Intrahousehold Risk-Sharing over the Business Cycle," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 536-548, August.
  • Handle: RePEc:tpr:restat:v:92:y:2010:i:3:p:536-548
    as

    Download full text from publisher

    File URL: http://www.mitpressjournals.org/doi/pdf/10.1162/REST_a_00009
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. McKinnon, Ronald I, 1982. "Currency Substitution and Instability in the World Dollar Standard," American Economic Review, American Economic Association, pages 320-333.
    2. Wang, Pengfei & Wen, Yi, 2007. "Inflation dynamics: A cross-country investigation," Journal of Monetary Economics, Elsevier, pages 2004-2031.
    3. Cristadoro, Riccardo & Forni, Mario & Reichlin, Lucrezia & Veronese, Giovanni, 2005. "A Core Inflation Indicator for the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(3), pages 539-560, June.
    4. Laurence M. Ball & Niamh Sheridan, 2004. "Does Inflation Targeting Matter?," NBER Chapters,in: The Inflation-Targeting Debate, pages 249-282 National Bureau of Economic Research, Inc.
    5. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, pages 25-45.
    6. Kenneth S. Rogoff, 2006. "Impact of globalization on monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 265-305.
    7. Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2007. "Similarities and convergence in G-7 cycles," Journal of Monetary Economics, Elsevier, pages 850-878.
    8. Anindya Banerjee & Massimiliano Marcellino & Igor Masten, 2005. "Leading Indicators for Euro-area Inflation and GDP Growth," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, pages 785-813.
    9. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, pages 381-427.
    10. Reinhart, Carmen, 2002. "A Modern History of Exchange Rate Arrangements: The Country Histories, 1946-2001," MPRA Paper 13191, University Library of Munich, Germany.
    11. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, pages 575-593.
    12. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 3-37, August.
    13. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    14. Ramón Adalid & Günter Coenen & Peter McAdam & Stefano Siviero, 2005. "The Performance and Robustness of Interest-Rate Rules in Models of the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
    15. Jushan Bai & Serena Ng, 2002. "Determining the Number of Factors in Approximate Factor Models," Econometrica, Econometric Society, pages 191-221.
    16. Anderton, R. & Skudelny, F., 2001. "Exchange Rate Volatility and Euro Area Imports," Papers 64, Quebec a Montreal - Recherche en gestion.
    17. Jean Boivin & Marc P. Giannoni, 2006. "Has Monetary Policy Become More Effective?," The Review of Economics and Statistics, MIT Press, pages 445-462.
    18. Gerard O'Reilly & Karl Whelan, 2005. "Has Euro-Area Inflation Persistence Changed Over Time?," The Review of Economics and Statistics, MIT Press, pages 709-720.
    19. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    20. Gerard O'Reilly & Karl Whelan, 2005. "Has Euro-Area Inflation Persistence Changed Over Time?," The Review of Economics and Statistics, MIT Press, pages 709-720.
    21. Gerlach, Stefan, 2003. "The ECB's Two Pillars," CEPR Discussion Papers 3689, C.E.P.R. Discussion Papers.
    22. Catherine Doz & Domenico Giannone & Lucrezia Reichlin, 2012. "A Quasi–Maximum Likelihood Approach for Large, Approximate Dynamic Factor Models," The Review of Economics and Statistics, MIT Press, pages 1014-1024.
    23. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
    24. Marianne Baxter & Robert G. King, 1999. "Measuring Business Cycles: Approximate Band-Pass Filters For Economic Time Series," The Review of Economics and Statistics, MIT Press, pages 575-593.
    25. Andrew T. Levin & Jeremy M. Piger, 2003. "Is inflation persistence intrinsic in industrial economies?," Working Papers 2002-023, Federal Reserve Bank of St. Louis.
    26. Marvin Goodfriend, 2007. "How the World Achieved Consensus on Monetary Policy," Journal of Economic Perspectives, American Economic Association, pages 47-68.
    27. Catherine Doz & Domenico Giannone & Lucrezia Reichlin, 2012. "A Quasi–Maximum Likelihood Approach for Large, Approximate Dynamic Factor Models," The Review of Economics and Statistics, MIT Press, pages 1014-1024.
    28. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, pages 25-45.
    29. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    30. Banerjee, Anindya & Marcellino, Massimiliano, 2006. "Are there any reliable leading indicators for US inflation and GDP growth?," International Journal of Forecasting, Elsevier, pages 137-151.
    31. Marcellino, Massimiliano, 2006. "Leading Indicators," Handbook of Economic Forecasting, Elsevier.
    32. Ignazio Angeloni & Luc Aucremanne & Matteo Ciccarelli, 2006. "Price setting and inflation persistence: did EMU matter?," Economic Policy, CEPR;CES;MSH, vol. 21(46), pages 353-387, April.
    33. Mario Forni & Marc Hallin & Marco Lippi & Lucrezia Reichlin, 2000. "The Generalized Dynamic-Factor Model: Identification And Estimation," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 540-554, November.
    34. D'Agostino, Antonello & Domenico, Giannone & Surico, Paolo, 2006. "(Un)Predictability and Macroeconomic Stability," Research Technical Papers 5/RT/06, Central Bank of Ireland.
    35. Canova, Fabio & Ciccarelli, Matteo & Ortega, Eva, 2004. "Similarities and convergence in G-7 cycles," Working Paper Series 312, European Central Bank.
    36. Stock, James H & Watson, Mark W, 2002. "Macroeconomic Forecasting Using Diffusion Indexes," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(2), pages 147-162, April.
    37. Forni, Mario & Reichlin, Lucrezia, 2001. "Federal policies and local economies: Europe and the US," European Economic Review, Elsevier, vol. 45(1), pages 109-134, January.
    38. Tommaso Monacelli & Luca Sala, 2009. "The International Dimension of Inflation: Evidence from Disaggregated Consumer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 101-120, February.
    39. Carlos Robalo Marques, 2005. "Inflation persistence: facts or artefacts?," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
    40. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2011. "Stocks, bonds, money markets and exchange rates: measuring international financial transmission," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 26(6), pages 948-974, September.
    41. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, pages 1216-1239.
    42. Timothy Cogley & Thomas J. Sargent, 2005. "The conquest of US inflation: Learning and robustness to model uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 528-563, April.
    43. Antonello D'Agostino & Domenico Giannone & Paolo Surico, 2005. "(Un)Predictability and Macroeconomic Stability," Macroeconomics 0510024, EconWPA.
    44. James H. Stock & Mark W. Watson, 2005. "Understanding Changes In International Business Cycle Dynamics," Journal of the European Economic Association, MIT Press, vol. 3(5), pages 968-1006, September.
    45. Edward J. Green & Richard M. Todd, 2001. "Thoughts on the Fed's role in the payments system," Annual Report, Federal Reserve Bank of Minneapolis, issue Apr, pages 6-27.
    46. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
    47. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Doepke, M. & Tertilt, M., 2016. "Families in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    2. Paciorek, Andrew & Sinai, Todd, 2012. "Does home owning smooth the variability of future housing consumption?," Journal of Urban Economics, Elsevier, vol. 71(2), pages 244-257.
    3. Whalley, Alexander, 2011. "Education and labor market risk: Understanding the role of data cleaning," Economics of Education Review, Elsevier, vol. 30(3), pages 528-545, June.
    4. Henry R. Hyatt, 2015. "Co-Working Couples and the Similar Jobs of Dual-Earner Households," Working Papers 15-23, Center for Economic Studies, U.S. Census Bureau.
    5. Stephen Shore, 2015. "The co-movement of couples’ incomes," Review of Economics of the Household, Springer, vol. 13(3), pages 569-588, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:92:y:2010:i:3:p:536-548. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites). General contact details of provider: http://mitpress.mit.edu/journals/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.