Nonlinear Micro Income Processes with Macro Shocks

Manuel Arellano, Richard Blundell (), Stéphane Bonhomme () and Martin Almuzara
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Stéphane Bonhomme: https://economics.uchicago.edu/directory/stephane-bonhomme

No 1162, Staff Reports from Federal Reserve Bank of New York

Abstract: We propose a nonlinear framework to study the dynamic transmission of aggregate and idiosyncratic shocks to household income that exploits both macro and micro data. Our approach allows us to examine empirically the following questions: (a) How do business-cycle fluctuations modulate the persistence of heterogeneous individual histories and the risk faced by households? (b) How do aggregate and idiosyncratic shocks propagate over time for households in different macro and micro states? (c) How do these shocks shape the cost of business-cycle risk? We develop new identification and estimation techniques and provide a detailed empirical analysis combining macro time series for the U.S. and a time series of household panels from the PSID.

Keywords: income processes; business cycle; persistence; exposure to aggregate shocks (search for similar items in EconPapers)
JEL-codes: C23 (search for similar items in EconPapers)
Pages: 74
Date: 2025-08-01
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Working Paper: Nonlinear micro income processes with macro shocks (2025)
Working Paper: Nonlinear micro income processes with macro shocks (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:101430

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DOI: 10.59576/sr.1162

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