Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144291
Authors: 
Pozzi, Lorenzo
Year of Publication: 
2005
Series/Report no.: 
Working Paper Research 77
Abstract: 
We investigate the relevance of aggregate and consumer-specific income uncertainty for aggregate consumption changes in the US over the period 1952-2001. Theoretically, the effect of income risk on consumption changes is decomposed into an aggregate and into a consumer-specific part. Empirically, aggregate risk is modelled through a GARCH process on aggregate income shocks and individual risk is modelled as an unobserved component and obtained through Kalman filtering. Our results suggest that aggregate income risk explains a negligible fraction of the variance of aggregate consumption changes. A more important part of aggregate consumption changes is explained by the unobserved component. The interpretation of this component as reflecting consumer-specific income risk is supported by the finding that it is negatively affected by received consumer transfers.
Subjects: 
income uncertainty
consumption
precaution
state space models
GARCH errors
unobserved component
Bayesian.
JEL: 
E21
Document Type: 
Working Paper

Files in This Item:
File
Size
537.97 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.