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A Nonparametric Characterization of Income Uncertainty over the Lifecycle

  • Geng Li

    (Federal Reserve Board)

  • James Feigenbaum

    (University of Pittsburgh)

In addition, we show that income uncertainty exhibits a U-shaped profile over the lifecyle, with young and old households facing greater uncertainty than middle-aged households. This pattern is particularly pronounced for near and intermediate forecast horizons. Our results are robust to various sample and model specifications and hold with respect to both labor and total family income. As opposed to a unit-root process, we find that our nonparametric estimates are better replicated by an income process with highly persistent, autoregressive shocks that have age and horizon dependent variances.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 464.

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Date of creation: 2009
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Handle: RePEc:red:sed009:464
Contact details of provider: Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  4. Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
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  25. Baker, Michael & Solon, Gary, 1999. "Earnings Dynamics and Inequality Among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records," Analytical Studies Branch Research Paper Series 1999130e, Statistics Canada, Analytical Studies Branch.
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