Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/306199 
Year of Publication: 
2024
Citation: 
[Journal:] International Economic Review [ISSN:] 1468-2354 [Volume:] 65 [Issue:] 3 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2024 [Pages:] 1105-1131
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
We explore the consequences of higher‐order risk in a standard incomplete‐markets life‐cycle model. We calibrate the model using a canonical income process with persistent and transitory risk, extended to feature cyclical shock distributions with left‐skewness and excess kurtosis. We estimate this income process for U.S. household data, and find shocks to be highly leptokurtic, with countercyclical variance and procyclical skewness of persistent shocks. In the model, first, higher‐order risk has sizable welfare implications; second, it matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, it has nontrivial implications for self‐insurance against shocks.
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article
Document Version: 
Published Version

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