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Estimating flexible income processes from subjective expectations data: evidence from India and Colombia

Author

Listed:
  • Manuel Arellano

    (CEMFI, Centro de Estudios Monetarios y Financieros)

  • Orazio Attanasio

    (Yale University and NBER)

  • Sam Crossman

    (UK Government Economic Service)

  • Víctor Sancibrián

    (CEMFI, Centro de Estudios Monetarios y Financieros)

Abstract

We develop a methodology for modeling household income processes when subjective probabilistic assessments of future income are available. This allows us to flexibly estimate conditional cdfs directly using elicited individual subjective probabilities, and to obtain empirical measurements of subjective risk and persistence. We then use two longitudinal surveys collected in rural India and rural Colombia to explore the nature of income dynamics in those contexts. Our results suggest linear income processes are rejected in favor of more flexible versions in both cases; subjective income distributions feature heteroskedasticity, conditional skewness and nonlinear persistence.

Suggested Citation

  • Manuel Arellano & Orazio Attanasio & Sam Crossman & Víctor Sancibrián, 2024. "Estimating flexible income processes from subjective expectations data: evidence from India and Colombia," Working Papers wp2024_2413, CEMFI.
    • Handle: RePEc:cmf:wpaper:wp2024_2413
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    References listed on IDEAS

    as
    1. Manuel Arellano & Stéphane Bonhomme, 2012. "Identifying Distributional Characteristics in Random Coefficients Panel Data Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(3), pages 987-1020.
    2. Hu, Yingyao, 2017. "The econometrics of unobservables: Applications of measurement error models in empirical industrial organization and labor economics," Journal of Econometrics, Elsevier, vol. 200(2), pages 154-168.
    3. Delavande, Adeline & Giné, Xavier & McKenzie, David, 2011. "Measuring subjective expectations in developing countries: A critical review and new evidence," Journal of Development Economics, Elsevier, vol. 94(2), pages 151-163, March.
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    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving

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