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Nonlinear Persistence and Partial Insurance: Income and Consumption Dynamics in the PSID

Author

Listed:
  • Manuel Arellano
  • Richard Blundell
  • Stephane Bonhomme

Abstract

In this paper we highlight the importance of the PSID in understanding income dynamics and consumption insurance. We explore the nonlinear nature of income shocks and describe a new quantile-based panel data framework for income dynamics. In this approach the persistence of past income shocks is allowed to vary according to the size and sign of the current shock. The model provides a good match with data and we confirm the results on population register data from Norway. Using the enhanced consumption and asset data in the PSID, nonlinear persistence is shown to have key implications for consumption insurance.

Suggested Citation

  • Manuel Arellano & Richard Blundell & Stephane Bonhomme, 2018. "Nonlinear Persistence and Partial Insurance: Income and Consumption Dynamics in the PSID," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 281-286, May.
    • Handle: RePEc:aea:apandp:v:108:y:2018:p:281-86
    Note: DOI: 10.1257/pandp.20181049
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    Citations

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    Cited by:

    1. Kohei Kubota, 2021. "Partial insurance in Japan," The Japanese Economic Review, Springer, vol. 72(2), pages 299-328, April.
    2. Fatih Guvenen & Fatih Karahan & Serdar Ozkan & Jae Song, 2021. "What Do Data on Millions of U.S. Workers Reveal About Lifecycle Earnings Dynamics?," Econometrica, Econometric Society, vol. 89(5), pages 2303-2339, September.
    3. Nayoung Lee & Hyungsik Roger Moon, 2021. "Heterogeneous Income Profiles Model with Fixed Effects: Incorporating Labour Income Shocks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 83(6), pages 1377-1407, December.
    4. Koşar, Gizem & van der Klaauw, Wilbert, 2023. "Workers' Perceptions of Earnings Growth and Employment Risk," IZA Discussion Papers 16013, Institute of Labor Economics (IZA).
    5. Joseph Altonji & Disa Hynsjo & Ivan Vidangos, 2023. "Individual Earnings and Family Income: Dynamics and Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 225-250, July.
    6. Richard A. Ashley & Christopher F. Parmeter, 2020. "Sensitivity Analysis of an OLS Multiple Regression Inference with Respect to Possible Linear Endogeneity in the Explanatory Variables, for Both Modest and for Extremely Large Samples," Econometrics, MDPI, vol. 8(1), pages 1-24, March.

    More about this item

    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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