Income variance dynamics and heterogenity

Costas Meghir and Luigi Pistaferri

No W01/07, IFS Working Papers from Institute for Fiscal Studies

Abstract: Recent theoretical work has shown the importance of measuring microeconomic uncertainty for models of both general and partial equilibrium under imperfect insurance. In this paper the assumption of i.i.d. income innovations used in previous empirical studies is removed and the focus of the analysis placed on models for the conditional variance of income shocks, that is related to the approporiate measure of risk emphasized by the theory. We first discriminate amongst various models of earnings determination that separate income shocks into idiosyncratic transitory and permanent components. We allow for education-specific differences in the stochastic process for earnings and for measurement error. The conditional variance of the income shocks is then modelled as a parsimonious autoregressive process with both observable and unobserved heterogeneity. The empirical analysis is conducted on data drawn from the 1967-1991 Panel Study of Income Dynamics.

JEL-codes: D12 E21 G11 (search for similar items in EconPapers)
Pages: 53 pp
Date: 2001-04-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.ifs.org.uk/wps/wp0107.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.ifs.org.uk/wps/wp0107.pdf [301 Moved Permanently]--> https://www.ifs.org.uk/wps/wp0107.pdf [302 Found]--> https://ifs.org.uk/wps/wp0107.pdf)

Related works:
Journal Article: Income Variance Dynamics and Heterogeneity (2004)
Working Paper: Income Variance Dynamics and Heterogeneity (2002)
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:ifs:ifsewp:01/07

Ordering information: This working paper can be ordered from
The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE

Access Statistics for this paper

More papers in IFS Working Papers from Institute for Fiscal Studies The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE. Contact information at EDIRC.
Bibliographic data for series maintained by Emma Hyman ().