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A Note on the Structural Stability of the Joint Distribution of Income and Wealth

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  • Paluch, Michal

Abstract

This paper analyzes the change over time in the distribution of households' income and financial wealth in Great Britain. Empirical analysis based on the British Family Resources Survey data from the period 1996-2001 examines whether the sequence of these distribution is structurally stable in the sense related to Malinvaud (1993). In order to do this, we look for the local time-invariance of a distribution derived after applying simple transformations like scaling or standardizing to the original distribution. In our study we make use of adaptive bandwidth univariate and bivariate kernel density estimation to identify the changes in shapes of the aforementioned distributions and to perform a nonparametric density time-invariance test as proposed by Li (1996). Our main result is that accounting only for the changes in the vector of means of the original distribution is not sufficient to obtain the desired local time-invariance. In fact, this can be achieved by accounting for changes in the vector of means and dispersion parameters of the original distribution.

Suggested Citation

  • Paluch, Michal, 2004. "A Note on the Structural Stability of the Joint Distribution of Income and Wealth," Bonn Econ Discussion Papers 16/2004, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:162004
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    References listed on IDEAS

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    1. Quah, Danny, 1997. "Empirics for growth and distribution," LSE Research Online Documents on Economics 2138, London School of Economics and Political Science, LSE Library.
    2. Maria Grazia Pittau & Roberto Zelli, 2004. "Testing for changing shapes of income distribution: Italian evidence in the 1990s from kernel density estimates," Empirical Economics, Springer, vol. 29(2), pages 415-430, May.
    3. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
    4. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
    5. Malinvaud, Edmond, 1993. "A framework for aggregation theories," Ricerche Economiche, Elsevier, vol. 47(2), pages 107-135, June.
    6. Danny Quah, 1997. "Empirics for Growth and Distribution," CEP Discussion Papers dp0324, Centre for Economic Performance, LSE.
    7. Quah, Danny T, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," Journal of Economic Growth, Springer, vol. 2(1), pages 27-59, March.
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    Cited by:

    1. Manisha Chakrabarty & Anke Schmalenbach & Jeffrey Racine, 2006. "On the distributional effects of income in an aggregate consumption relation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 39(4), pages 1221-1243, November.

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