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High Frequency Income Dynamics

Author

Listed:
  • Jeppe Druedahl

    (CEBI, Department of Economics, University of Copenhagen)

  • Michael Graber

    (Department of Economics, University of Chicago)

  • Thomas H. Jørgensen

    (CEBI, Department of Economics, University of Copenhagen)

Abstract

We generalize the canonical permanent-transitory income process to allow for infrequent shocks. The distribution of income growth rates can then have a discrete mass point at zero and fat tails as observed in income data. We provide analytical formulas for the unconditional and conditional distributions of income growth rates and higher-order moments. We prove a set of identification results and numerically validate that we can simultaneously identify the frequency, variance, and persistence of income shocks. We estimate the income process on monthly panel data of 400,000 Danish males observed over 8 years. When allowing shocks to be infrequent, the proposed income process can closely match the central features of the data.

Suggested Citation

  • Jeppe Druedahl & Michael Graber & Thomas H. Jørgensen, 2021. "High Frequency Income Dynamics," CEBI working paper series 21-08, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    • Handle: RePEc:kud:kucebi:2108
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    File URL: https://www.econ.ku.dk/cebi/publikationer/working-papers/CEBI_WP_08-21.pdf
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    References listed on IDEAS

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    2. Tao Wang, 2023. "Perceived versus Calibrated Income Risks in Heterogeneous-Agent Consumption Models," Staff Working Papers 23-59, Bank of Canada.
    3. Da Zhao & Jingyuan Guo & Hong Zou & Ze Song, 2022. "From Price to Gain: The Evolution of Household Income Volatility and Consumption Insurance in Urban China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(6), pages 113-136, November.

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    More about this item

    Keywords

    consumption-saving; income dynamics; panel data models;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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