Modelling income risk dynamics in the UK: a parametric approach

Marco D’Amico () and Martina Fazio ()
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Marco D’Amico: Uppsala University
Martina Fazio: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 1129, Bank of England working papers from Bank of England

Abstract: This paper uses rich, administrative-quality data on earnings in the UK from the Annual Survey of Hours and Earnings (ASHE) to provide a detailed analysis of income risk and its patterns across individuals and over time. We develop a model of income dynamics that accounts for the broader state of the economy and successfully captures key features of the UK earnings growth distribution, including: a cyclical variance, procyclical skewness (more frequent negative earnings shocks during recessions), and a distribution that combines sharp peaks with long, heavy tails. The model is simple enough to be integrated into broader macroeconomic frameworks, such as heterogeneous agent models, and could be used to support policy scenario analysis.

Keywords: Idiosyncratic risk; income dynamics; inequality; income process (search for similar items in EconPapers)
JEL-codes: C15 C63 J01 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2025-05-30
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:1129

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