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Heterogeneity in income processes

Author

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  • Sam Schulhofer-Wohl

    (Princeton University)

  • Andriy Norets

    (Princeton University)

Abstract

Macroeconomists are increasingly interested in heterogeneity in individuals' preferences and in the income risk that they face. Previous empirical papers have focused on only one or a few aspects of heterogeneity. In this paper, we estimate the entire joint distribution of risk preferences and income processes. Our model allows individual-specific trends, persistence and volatility of income and permits all of these characteristics to be correlated with the individual's risk preferences. We find substantial heterogeneity in all parameters of the income process. These findings potentially have substantial implications for the conclusions of microfounded macro models.

Suggested Citation

  • Sam Schulhofer-Wohl & Andriy Norets, 2009. "Heterogeneity in income processes," 2009 Meeting Papers 999, Society for Economic Dynamics.
    • Handle: RePEc:red:sed009:999
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    References listed on IDEAS

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    Cited by:

    1. Vasia Panousi & Ivan Vidangos & Giovanni Violante & Bradley Heim & Fatih Guvenen, 2010. "Idiosyncratic Income Risk Estimated From IRS Administrative Wage Data," 2010 Meeting Papers 108, Society for Economic Dynamics.

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