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Small Sample Properties of Bayesian Estimators of Labor Income Processes

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  • Taisuke Nakata
  • Christopher Tonetti

Abstract

There exists an extensive literature estimating idiosyncratic labor income processes. While a wide variety of models are estimated, GMM estimators are almost always used. We examine the validity of using likelihood based estimation in this context by comparing the small sample properties of a Bayesian estimator to those of GMM. Our baseline studies estimators of a commonly used simple earnings process. We extend our analysis to more complex environments, allowing for real world phenomena such as time varying and heterogeneous parameters, missing data, unbalanced panels, and non-normal errors. The Bayesian estimators are demonstrated to have favorable bias and efficiency properties.

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  • Taisuke Nakata & Christopher Tonetti, 2015. "Small Sample Properties of Bayesian Estimators of Labor Income Processes," Journal of Applied Economics, Taylor & Francis Journals, vol. 18(1), pages 121-148, May.
    • Handle: RePEc:taf:recsxx:v:18:y:2015:i:1:p:121-148
    DOI: 10.1016/S1514-0326(15)30006-4
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    Cited by:

    1. John Carter Braxton & Kyle F. Herkenhoff & Jonathan Rothbaum & Lawrence Schmidt, 2021. "Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter," Opportunity and Inclusive Growth Institute Working Papers 55, Federal Reserve Bank of Minneapolis.
    2. Hyungsik Roger Moon & Frank Schorfheide & Boyuan Zhang, 2023. "Bayesian Estimation of Panel Models under Potentially Sparse Heterogeneity," Papers 2310.13785, arXiv.org, revised Feb 2024.
    3. Arpita Chatterjee & James Morley & Aarti Singh, 2019. "Full Information Estimation of Household Income Risk and Consumption Insurance," Discussion Papers 2019-07, School of Economics, The University of New South Wales.
    4. Gal Hochman & David Zilberman, 2018. "Corn Ethanol and U.S. Biofuel Policy 10 Years Later: A Quantitative Assessment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(2), pages 570-584.

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    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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