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Heterogeneity in income processes

Author

Listed:
  • Sam Schulhofer-Wohl

    (Princeton University)

  • Andriy Norets

    (Princeton University)

Abstract

Macroeconomists are increasingly interested in heterogeneity in individuals' preferences and in the income risk that they face. Previous empirical papers have focused on only one or a few aspects of heterogeneity. In this paper, we estimate the entire joint distribution of risk preferences and income processes. Our model allows individual-specific trends, persistence and volatility of income and permits all of these characteristics to be correlated with the individual's risk preferences. We find substantial heterogeneity in all parameters of the income process. These findings potentially have substantial implications for the conclusions of microfounded macro models.

Suggested Citation

  • Sam Schulhofer-Wohl & Andriy Norets, 2009. "Heterogeneity in income processes," 2009 Meeting Papers 999, Society for Economic Dynamics.
  • Handle: RePEc:red:sed009:999
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    File URL: https://economicdynamics.org/meetpapers/2009/paper_999.pdf
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    References listed on IDEAS

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    1. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
    2. John Geweke, 2004. "Getting It Right: Joint Distribution Tests of Posterior Simulators," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 799-804, January.
    3. Michael Baker & Gary Solon, 2003. "Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records," Journal of Labor Economics, University of Chicago Press, vol. 21(2), pages 267-288, April.
    4. 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.
    5. Sam Schulhofer-Wohl, 2007. "Heterogeneity, Risk Sharing and the Welfare Costs of Risk," 2007 Meeting Papers 926, Society for Economic Dynamics.
    6. Norets, Andriy & Pelenis, Justinas, 2012. "Bayesian modeling of joint and conditional distributions," Journal of Econometrics, Elsevier, vol. 168(2), pages 332-346.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Vasia Panousi & Ivan Vidangos & Giovanni Violante & Bradley Heim & Fatih Guvenen, 2010. "Idiosyncratic Income Risk Estimated From IRS Administrative Wage Data," 2010 Meeting Papers 108, Society for Economic Dynamics.

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