Income uncertainty and aggregate consumption
We investigate the relevance of aggregate and consumer-specific income uncertainty for aggregate consumption changes in the US over the period 1952-2001. Theoretically, the effect of income risk on consumption changes is decomposed into an aggregate and into a consumer-specific part. Empirically, aggregate risk is modelled through a GARCH process on aggregate income shocks and individual risk is modelled as an unobserved component and obtained through Kalman filtering. Our results suggest that aggregate income risk explains a negligible fraction of the variance of aggregate consumption changes. A more important part of aggregate consumption changes is explained by the unobserved component. The interpretation of this component as reflecting consumer-specific income risk is supported by the finding that it is negatively affected by received consumer transfers.
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- Skinner, Jonathan, 1988.
"Risky income, life cycle consumption, and precautionary savings,"
Journal of Monetary Economics,
Elsevier, vol. 22(2), pages 237-255, September.
- Jonathan S. Skinner, 1987. "Risky Income, Life Cycle Consumption, and Precautionary Savings," NBER Working Papers 2336, National Bureau of Economic Research, Inc.
- Chang-Jin Kim & Charles R. Nelson, 1999. "State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262112388, July. Full references (including those not matched with items on IDEAS)