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Income and Consumption: a Micro Semistructural Analysis with Pervasive Heterogeneity

Alan, Sule and Browning, Martin and Ejrnæs, Mette (2018) 'Income and Consumption: a Micro Semistructural Analysis with Pervasive Heterogeneity.' Journal of Political Economy, 126 (5). pp. 1827-1864. ISSN 0022-3808

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We develop a model of consumption and income that allows for pervasive heterogeneity in the parameters of both processes. Introducing co-dependence between household income parameters and preference parameters, we also allow for heterogeneity in the impact of income shocks on consumption. We estimate the parameters of the model using a sample from the PSID, covering the period 1968 to 2009. We find considerable co-dependent heterogeneity in the parameters governing income and consumption processes. Our results suggest a great deal of heterogeneity in the reaction of consumption to income shocks, highlighting the heterogeneity in the self-insurance available to households.

Item Type: Article
Uncontrolled Keywords: preference heterogeneity; consumption; income.
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 19 Feb 2018 16:54
Last Modified: 06 Jan 2022 13:47

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