Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71490
Authors: 
Blundell, Richard W.
Low, Hamish
Preston, Ian
Year of Publication: 
2004
Series/Report no.: 
IFS Working Papers, Institute for Fiscal Studies (IFS) 04/26
Abstract: 
This paper assesses the accuracy of decomposing income risk into permanent and transitory components using income and consumption data. We develop a specific approximation to the optimal consumption growth rule and use Monte Carlo evidence to show that this approximation can provide a robust method for decomposing income risk. The availability of asset data enables the use of a more accurate approximation allowing for partial self-insurance against permanent shocks. We show that the use of data on median asset holdings corrects much of the error in the simple approximation which assumes no self-insurance against permanent shocks.
Subjects: 
income risk
inequality
approximation methods
consumption
JEL: 
C30
D52
D91
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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