Income uncertainty and aggregate consumption

L. Pozzi ()
Additional contact information
L. Pozzi: Ghent University, Study Hive for Economic Research and Public Policy Analysis (SHERPPA)

No 77, Working Paper Research from National Bank of Belgium

Abstract: We investigate the relevance of aggregate and consumer-specific income uncertainty for aggregate consumption changes in the US over the period 1952-2001. Theoretically, the effect of income risk on consumption changes is decomposed into an aggregate and into a consumer-specific part. Empirically, aggregate risk is modelled through a GARCH process on aggregate income shocks and individual risk is modelled as an unobserved component and obtained through Kalman filtering. Our results suggest that aggregate income risk explains a negligible fraction of the variance of aggregate consumption changes. A more important part of aggregate consumption changes is explained by the unobserved component. The interpretation of this component as reflecting consumer-specific income risk is supported by the finding that it is negatively affected by received consumer transfers.

Keywords: income uncertainty; consumption; precaution; state space models; GARCH errors; unobserved component; Bayesian. (search for similar items in EconPapers)
JEL-codes: E21 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2005-11
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.nbb.be/doc/ts/publications/wp/wp77en.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:200511-2

Access Statistics for this paper

More papers in Working Paper Research from National Bank of Belgium Contact information at EDIRC.
Bibliographic data for series maintained by ().