IDEAS home Printed from https://ideas.repec.org/p/fip/fedmwp/707.html
   My bibliography  Save this paper

The age-time-cohort problem and the identification of structural parameters in life-cylce models

Author

Abstract

The standard approach to estimating structural parameters in life-cycle models imposes sufficient assumptions on the data to identify the ?age profile? of outcomes, then chooses model parameters so that the model?s age profile matches this empirical age profile. I show that the standard approach is both incorrect and unnecessary: incorrect, because it generally produces inconsistent estimators of the structural parameters, and unnecessary, because consistent estimators can be obtained under weaker assumptions. I derive an estimation method that avoids the problems of the standard approach. I illustrate the method?s benefits analytically in a simple model of consumption inequality and numerically by reestimating the classic life-cycle consumption model of Gourinchas and Parker (2002).

Suggested Citation

  • Sam Schulhofer-Wohl, 2013. "The age-time-cohort problem and the identification of structural parameters in life-cylce models," Working Papers 707, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmwp:707
    as

    Download full text from publisher

    File URL: http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=5135
    Download Restriction: no
    File URL: http://www.minneapolisfed.org/research/wp/wp707.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David J. McKenzie, 2006. "Disentangling Age, Cohort and Time Effects in the Additive Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(4), pages 473-495, August.
    2. Mariacristina De Nardi & Eric French & John B. Jones, 2010. "Why Do the Elderly Save? The Role of Medical Expenses," Journal of Political Economy, University of Chicago Press, vol. 118(1), pages 39-75, February.
    3. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769.
    4. Greg Kaplan, 2012. "Inequality and the life cycle," Quantitative Economics, Econometric Society, vol. 3(3), pages 471-525, November.
    5. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2005. "Two Views of Inequality Over the Life Cycle," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 765-775, 04/05.
    6. Mark Aguiar & Erik Hurst, 2013. "Deconstructing Life Cycle Expenditure," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 437-492.
    7. Sam Schulhofer-Wohl & Yang Yang, 2011. "Modeling the evolution of age and cohort effects in social research," Staff Report 461, Federal Reserve Bank of Minneapolis.
    8. R. E. Hall, 1968. "Technical Change and Capital from the Point of View of the Dual," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(1), pages 35-46.
    9. Jessica A. Wachter & Motohiro Yogo, 2010. "Why Do Household Portfolio Shares Rise in Wealth?," The Review of Financial Studies, Society for Financial Studies, vol. 23(11), pages 3929-3965, November.
    10. Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002. "Consumption Over the Life Cycle," Econometrica, Econometric Society, vol. 70(1), pages 47-89, January.
    11. Cagetti, Marco, 2003. "Wealth Accumulation over the Life Cycle and Precautionary Savings," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(3), pages 339-353, July.
    12. Victor Chernozhukov & Han Hong & Elie Tamer, 2007. "Estimation and Confidence Regions for Parameter Sets in Econometric Models," Econometrica, Econometric Society, vol. 75(5), pages 1243-1284, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The age-time-cohort problem and the identification of structural parameters in life-cylce models
      by Christian Zimmermann in NEP-DGE blog on 2013-07-22 08:53:16

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jesse Rothstein, 2023. "The Lost Generation? Labor Market Outcomes for Post-Great Recession Entrants," Journal of Human Resources, University of Wisconsin Press, vol. 58(5), pages 1452-1479.
    2. Luiz Mello & Simone Schotte & Erwin R. Tiongson & Hernan Winkler, 2017. "Greying the Budget: Ageing and Preferences over Public Policies," Kyklos, Wiley Blackwell, vol. 70(1), pages 70-96, February.
    3. Enrico Moretti & Daniel J. Wilson, 2017. "The Effect of State Taxes on the Geographical Location of Top Earners: Evidence from Star Scientists," American Economic Review, American Economic Association, vol. 107(7), pages 1858-1903, July.
    4. Hippolyte d'Albis & Ikpidi Badji, 2017. "Les inégalités de niveaux de vie entre les générations en France," Post-Print halshs-01524882, HAL.
    5. Cao, Shutao & Meh, Césaire A. & Ríos-Rull, José-Víctor & Terajima, Yaz, 2021. "The welfare cost of inflation revisited: The role of financial innovation and household heterogeneity," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 366-380.
    6. Hippolyte d’Albis & Ikpidi Badji, 2017. "Intergenerational inequalities in standards of living in France," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 491-492, pages 71-92.
    7. Jelnov, Pavel & Weiss, Yoram, 2022. "Influence in economics and aging," Labour Economics, Elsevier, vol. 77(C).
    8. Frank T Denton & Byron G Spencer & Terry A Yip, 2019. "Age-Income Dynamics Over The Life Course: Cohort Transition Patterns In Relative Income Based On Canadian Tax Returns," Department of Economics Working Papers 2019-02, McMaster University.
    9. Zoë Fannon & B. Nielsen, 2018. "Age-period cohort models," Economics Papers 2018-W04, Economics Group, Nuffield College, University of Oxford.
    10. G. C. Lim & Q. Zeng, 2016. "Consumption, Income, and Wealth: Evidence from Age, Cohort, and Period Elasticities," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 489-508, September.
    11. Bardazzi, Rossella & Pazienza, Maria Grazia, 2018. "Ageing and private transport fuel expenditure: Do generations matter?," Energy Policy, Elsevier, vol. 117(C), pages 396-405.
    12. Lorenz Kueng & Mu-Jeung Yang & Bryan Hong, 2014. "Sources of Firm Life-Cycle Dynamics: Differentiating Size vs. Age Effects," NBER Working Papers 20621, National Bureau of Economic Research, Inc.
    13. Bardazzi, Rossella & Pazienza, Maria Grazia, 2017. "Switch off the light, please! Energy use, aging population and consumption habits," Energy Economics, Elsevier, vol. 65(C), pages 161-171.
    14. Päivi Kankaanranta, 2019. "A Cohort-Analysis of Age-Wealth Profile in Finland," Discussion Papers 130, Aboa Centre for Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    2. Päivi Kankaanranta, 2019. "A Cohort-Analysis of Age-Wealth Profile in Finland," Discussion Papers 130, Aboa Centre for Economics.
    3. Corina Boar, 2017. "Dynastic Precautionary Savings," 2017 Meeting Papers 343, Society for Economic Dynamics.
    4. KITAO Sagiri & YAMADA Tomoaki, 2023. "The Time Trend and Life-cycle Profiles of Consumption," Discussion papers 23036, Research Institute of Economy, Trade and Industry (RIETI).
    5. Russell Cooper & Guozhong Zhu, 2016. "Household Finance over the Life-Cycle: What does Education Contribute?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 63-89, April.
    6. Corina Boar, 2021. "Dynastic Precautionary Savings [“Deconstructing Life Cycle Expenditure”]," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 88(6), pages 2735-2765.
    7. Fatih Karahan & Serdar Ozkan, 2013. "On the Persistence of Income Shocks over the Life Cycle: Evidence, Theory, and Implications," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 452-476, July.
    8. Groneck, Max & Ludwig, Alexander & Zimper, Alexander, 2016. "A life-cycle model with ambiguous survival beliefs," Journal of Economic Theory, Elsevier, vol. 162(C), pages 137-180.
    9. Aguiar, M. & Hurst, E., 2016. "The Macroeconomics of Time Allocation," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 203-253, Elsevier.
    10. Yunus Aksoy & Henrique S. Basso & Carolyn St Aubyn, 2019. "Time Variation in Lifecycle Consumption and Income," BCAM Working Papers 1904, Birkbeck Centre for Applied Macroeconomics.
    11. Francesca Parodi, 2024. "Consumption Tax Cuts In A Recession," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(1), pages 117-148, February.
    12. Michael Dotsey & Wenli Li & Fang Yang, 2014. "Consumption And Time Use Over The Life Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(3), pages 665-692, August.
    13. Chiara Dal Bianco, 2023. "Disability Insurance and the Effects of Return-to-work Policies," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 351-373, July.
    14. Mariacristina De Nardi & Eric French & John Bailey Jones, 2016. "Savings After Retirement: A Survey," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 177-204, October.
    15. Eric French & John Bailey Jones, 2011. "The Effects of Health Insurance and Self‐Insurance on Retirement Behavior," Econometrica, Econometric Society, vol. 79(3), pages 693-732, May.
    16. Jones, John Bailey & Li, Yue, 2018. "The effects of collecting income taxes on Social Security benefits," Journal of Public Economics, Elsevier, vol. 159(C), pages 128-145.
    17. Joachim Inkmann & Paula Lopes & Alexander Michaelides, 2011. "How Deep Is the Annuity Market Participation Puzzle?," The Review of Financial Studies, Society for Financial Studies, vol. 24(1), pages 279-319.
    18. Campanale Claudio, 2018. "Luxury consumption, precautionary savings and wealth inequality," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-15, January.
    19. Annamaria Lusardi & Pierre-Carl Michaud & Olivia S. Mitchell, 2017. "Optimal Financial Knowledge and Wealth Inequality," Journal of Political Economy, University of Chicago Press, vol. 125(2), pages 431-477.
    20. Blundell, Richard & Graber, Michael & Mogstad, Magne, 2015. "Labor income dynamics and the insurance from taxes, transfers, and the family," Journal of Public Economics, Elsevier, vol. 127(C), pages 58-73.

    More about this item

    Keywords

    Demography;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J1 - Labor and Demographic Economics - - Demographic Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedmwp:707. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kate Hansel (email available below). General contact details of provider: https://edirc.repec.org/data/cfrbmus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.