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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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  1. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
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  9. Jesús Fernández-Villaverde & Dirk Krueger, 2003. "Consumption over the Life Cycle: Some Facts from Consumer Expenditure Survey Data," Levine's Working Paper Archive 506439000000000304, David K. Levine.
  10. Christopher D. Carroll & Andrew A. Samwick, 1995. "How Important is Precautionary Saving?," NBER Working Papers 5194, National Bureau of Economic Research, Inc.
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  12. Cunha, Flavio & Heckman, James & Navarro, Salvador, 2004. "Separating uncertainty from heterogeneity in life cycle earnings," Working Paper Series 2005:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  13. Karen E. Dynan & Douglas W. Elmendorf & Daniel E. Sichel, 2005. "Can financial innovation help to explain the reduced volatility of economic activity?," Finance and Economics Discussion Series 2005-54, Board of Governors of the Federal Reserve System (U.S.).
  14. Michael Baker & Gary Solon, 1998. "Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records," Working Papers baker-98-01, University of Toronto, Department of Economics.
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  17. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August.
  18. Feigenbaum James A. & Li Geng, 2012. "Life Cycle Dynamics of Income Uncertainty and Consumption," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-49, May.
  19. Jesus Fernandez-Villaverde & Dirk Krueger, 2002. "Consumption over the Life Cycle: Facts from Consumer Expenditure Survey Data," NBER Working Papers 9382, National Bureau of Economic Research, Inc.
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  24. Fatih Guvenen, 2004. "Learning your Earning: Are Labor Income Shocks Really That Persistent?," 2004 Meeting Papers 177, Society for Economic Dynamics.
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