Income and Consumption: A Micro Semistructural Analysis with Pervasive Heterogeneity

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Abstract

We develop a model of consumption and income that allows for pervasive heterogeneity in the parameters of both processes. Introducing co-dependence between household income parameters and preference parameters, we also allow for heterogeneity in the impact of income shocks on consumption. We estimate the parameters of the model using a sample from the PSID, covering the period 1968 to 2009. We find considerable co-dependent heterogeneity in the parameters governing income and consumption processes. Our results suggest a great deal of heterogeneity in the reaction of consumption to income shocks, highlighting the heterogeneity in the self-insurance available to households.
OriginalsprogEngelsk
TidsskriftJournal of Political Economy
Vol/bind126
Udgave nummer5
Sider (fra-til)1827-1864
ISSN0022-3808
DOI
StatusUdgivet - okt. 2018

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