A random walk stochastic volatility model for income inequality

Haruhisa Nishino and Kazuhiko Kakamu

Japan and the World Economy, 2015, vol. 36, issue C, 21-28

Abstract: This paper develops dynamic models that include income inequality from grouped income data to investigate persistent inequality. After we check that the lognormal distribution is adequately fitted to Japanese income data, by the asymptotic theorem of selected order statistics we construct an approximate linear model, which is extended to dynamic models, including a stochastic volatility (SV) model and a random-walk SV model. We can thus estimate the parameter of inequality directly. Both models are estimated using Japanese income data with the Markov chain Monte Carlo (MCMC) method and a model comparison is made. The SV model is better fitted than the random-walk SV model. We can capture the changing Gini coefficients for Japan using the SV model.

Keywords: Income inequality; Lognormal; Persistence; Selected order statistics; Random-walk stochastic volatility (SV) model (search for similar items in EconPapers)
JEL-codes: C11 C22 D31 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:36:y:2015:i:c:p:21-28

DOI: 10.1016/j.japwor.2015.06.003

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