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How Much Consumption Insurance in Bewley Models with Endogenous Family Labor Supply?

Chunzan Wu and Dirk Krueger ()

No 24472, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that a calibrated life-cycle two-earner household model with endogenous labor supply can rationalize the extent of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and Saporta-Eksten (2016) in U.S. data. With additively separable preferences, 43% of male and 23% of female permanent wage shocks pass through to consumption, compared to the empirical estimates of 34% and 20%. With non-separable preferences the model predicts more consumption insurance, with pass-through rates of 29% and 16%. Most of the consumption insurance against permanent male wage shocks is provided through the labor supply response of the female earner.

JEL-codes: D15 D31 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-ias, nep-lab and nep-mac
Date: 2018-03
Note: EFG LS
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