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Life Cycle Dynamics of Income Uncertainty and Consumption
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James A. Feigenbaum
Published/Copyright:
May 23, 2012
We propose a method for estimating household income uncertainty that does not impose restrictions on the underlying income shocks or assumptions about household behaviors. We measure income uncertainty as the variance of linear projection errors at various future horizons, up to 25 years ahead, conditional on only the information available to households when the projection is made. Our uncertainty estimates change substantially over the life cycle. We calibrate an income process to match our estimates, allowing the variances of both transitory and persistent shocks to change over the life cycle. Relative to previous studies, we find lower and less persistent income uncertainties that call for a life cycle consumption profile with a less pronounced hump.
Keywords: income uncertainty; projection errors; life cycle dynamics; precautionary saving; consumption hump
Published Online: 2012-5-23
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Keywords for this article
income uncertainty;
projection errors;
life cycle dynamics;
precautionary saving;
consumption hump
Articles in the same Issue
- Advances Article
- Life Cycle Dynamics of Income Uncertainty and Consumption
- Immigration, Fiscal Policy, and Welfare in an Aging Population
- Contributions Article
- Who Gets the Credit? And Does It Matter? Household vs. Firm Lending Across Countries
- How Much Did the 2009 Australian Fiscal Stimulus Boost Demand? Evidence from Household-Reported Spending Effects
- Economic Growth and Political Survival
- Exchange Rate Uncertainty and Trade
- Monetary and Macroprudential Policy Rules in a Model with House Price Booms
- A Unified Framework for Using Micro-Data to Compare Dynamic Time-Dependent Price-Setting Models
- Government Policy Response to War-Expenditure Shocks
- Poverty Traps and Growth in a Model of Endogenous Time Preference
- Where Has All the Money Gone? Foreign Aid and the Composition of Government Spending
- Great Spending Crashes
- Capital Utilization and the Amplification Mechanism
- Topics Article
- Unemployment Expectations and the Business Cycle
- Sector-Specific Capital, Labor Market Distortions and Cross-Country Income Differences: A Two-Sector General Equilibrium Approach
- A Dynamic Theory of Competence, Loyalty and Stability in Dictatorships
- Coordination Failure in Investment, Economic Growth, and Volatility
- Openness, Imported Commodities and the Sacrifice Ratio
- Consumption, Leisure and Borrowing Constraints
- A Credibility Proxy: Tracking US Monetary Developments
- Estimating Information Rigidity Using Firms' Survey Data
- Has the Fed Reacted Asymmetrically to Stock Prices?
- News Shocks, Productivity and the U.S. Investment Boom-Bust Cycle
- A Supply-Demand Framework for Understanding the U.S. Gender Gap in Education
- Misallocation and Manufacturing TFP in Bolivia during the Market Liberalization Period
- Government Debt Dynamics Under Discretion
- The Global Transmission of Government Debt
- Is Discretionary Fiscal Policy in Japan Effective?
- The Laffer Curve in a Frictional Labor Market
- Nonexponential Discounting: A Direct Test And Perhaps A New Puzzle
- International Transmission of Medium-Term Technology Cycles: Evidence from Spain as a Recipient Country
- Phases of Economic Development: Do Initial Endowments Matter?
