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Inferring Labor Income Risk from Economic Choices: An Indirect Inference Approach

Author

Listed:
  • Tony Smith

    (Yale Univ.)

  • M. Fatih Guvenen

    (Univ. of Texas at Austin)

Abstract

borrowing constraints and risk-averse households. In this estimation, we account for measurement error in both consumption and income and we use an auxiliary model---which forms the bridge between the data and the consumption-savings model---that provides a sharp distinction between the RIP and HIP models. Finally, we conduct formal statistical tests to assess the extent to which the RIP and HIP models find support in the data.

Suggested Citation

  • Tony Smith & M. Fatih Guvenen, 2007. "Inferring Labor Income Risk from Economic Choices: An Indirect Inference Approach," 2007 Meeting Papers 1024, Society for Economic Dynamics.
  • Handle: RePEc:red:sed007:1024
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    References listed on IDEAS

    as
    1. Jonathan Heathcote & Fabrizio Perri & Giovanni L. Violante, 2010. "Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States: 1967-2006," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 15-51, January.
    2. Costas Meghir & Luigi Pistaferri, 2001. "Income variance dynamics and heterogenity," IFS Working Papers W01/07, Institute for Fiscal Studies.
    3. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, pages 1887-1921.
    4. Fatih Guvenen, 2007. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," American Economic Review, American Economic Association, pages 687-712.
    5. Pedro Carneiro & Karsten T. Hansen & James J. Heckman, 2003. "Estimating Distributions of Treatment Effects with an Application to the Returns to Schooling and Measurement of the Effects of Uncertainty on College," NBER Working Papers 9546, National Bureau of Economic Research, Inc.
    6. Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
    7. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 695-717, June.
    8. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
    9. Haider, Steven J, 2001. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 799-836, October.
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    13. Mark Huggett & Gustavo Ventura & Amir Yaron, 2011. "Sources of Lifetime Inequality," American Economic Review, American Economic Association, pages 2923-2954.
    14. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
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    16. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-375, April.
    17. Phelan, J.C., 1990. "Incentives, Insurance And The Variability Of Con Somption And Leisure," Working papers 90-26, Wisconsin Madison - Social Systems.
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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