Measuring consumption smoothing in CEX data
Martin Gervais () and
Paul Klein ()
Journal of Monetary Economics, 2010, vol. 57, issue 8, 988-999
A new method of measuring the degree of consumption smoothing is proposed and implemented using data from the Consumer Expenditure Survey. The structure of this Survey is such that estimators previously used in the literature are inconsistent, simply because income is measured annually and consumption is measured quarterly. An AR(1) structure is imposed on the income process to obtain a proxy for quarterly income through a projection on annual income. By construction, this proxy gives rise to a measurement error which is orthogonal to the proxy itself--as opposed to the unobserved regressor--leading to a consistent estimator. Our estimates are contrasted with the output of two estimators used in the literature. This comparison shows that while the first (OLS) estimator tends to overstate the degree of risk sharing, the second (IV) estimator grossly understates it.
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (9) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:eee:moneco:v:57:y:2010:i:8:p:988-999
Access Statistics for this article
Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser
More articles in Journal of Monetary Economics from Elsevier
Series data maintained by Dana Niculescu ().