Decomposing changes in income risk using consumption data

Richard Blundell (), Hamish Low and Ian Preston

No W08/13, IFS Working Papers from Institute for Fiscal Studies

Abstract: This paper concerns the decomposition of income risk into permanent and transitory components using repeated cross-section data on income and consumption. Our focus is on the detection of changes in the magnitudes of variances of permanent and transitory risks. A new approximation to the optimal consumption growth rule is developed. Evidence from a dynamic stochastic simulation is used to show that this approximation can provide a robust method for decomposing income risk in a nonstationary environment. We examine robustness to unobserved heterogeneity in consumption growth and to unobserved heterogeneity in income growth. We use this approach to investigate the growth in income inequality in the UK in the 1980s.

Keywords: Income risk; inequality; approximation methods; consumption (search for similar items in EconPapers)
JEL-codes: C30 D52 D91 (search for similar items in EconPapers)
Pages: 54 pp.
Date: 2008-11-18
New Economics Papers: this item is included in nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://www.ifs.org.uk/wps/wp0813.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/wp0813.pdf [301 Moved Permanently]--> https://www.ifs.org.uk/wps/wp0813.pdf [302 Found]--> https://ifs.org.uk/wps/wp0813.pdf)

Related works:
Journal Article: Decomposing changes in income risk using consumption data (2013)
Working Paper: Decomposing Changes in Income Risk Using Consumption Data (2011)
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:08/13

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 ().