The age-time-cohort problem and the identification of structural parameters in life-cylce models
The standard approach to estimating structural parameters in life-cycle models imposes sufficient assumptions on the data to identify the “age profile” of outcomes, then chooses model parameters so that the model’s age profile matches this empirical age profile. I show that the standard approach is both incorrect and unnecessary: incorrect, because it generally produces inconsistent estimators of the structural parameters, and unnecessary, because consistent estimators can be obtained under weaker assumptions. I derive an estimation method that avoids the problems of the standard approach. I illustrate the method’s benefits analytically in a simple model of consumption inequality and numerically by reestimating the classic life-cycle consumption model of Gourinchas and Parker (2002).
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- Mariacristina De Nardi & Eric French & John B. Jones, 2010.
"Why Do the Elderly Save? The Role of Medical Expenses,"
Journal of Political Economy,
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