Identifying heterogeneous income profiles using covariances of income levels and future growth rates
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Identifying heterogeneous income profiles using covariances of income levels and future growth rates. / Druedahl, Jeppe; Munk-Nielsen, Anders.
I: Journal of Economic Dynamics and Control, Bind 94, 09.2018, s. 24-42.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - Identifying heterogeneous income profiles using covariances of income levels and future growth rates
AU - Druedahl, Jeppe
AU - Munk-Nielsen, Anders
PY - 2018/9
Y1 - 2018/9
N2 - This paper shows that a central implication of heterogeneous income profiles (HIP) is that the covariance between the level of income and future income growth rates must become strongly positive from about age 40. Covariances of income levels and future growth rates therefore have strong identifying power for HIP. We show that adding such moments to an estimation can reverse seemingly strong evidence of HIP. We show this both in a small sample Monte Carlo study and using PSID data. Our results are robust to including a fixed effect correlated with the HIP component.
AB - This paper shows that a central implication of heterogeneous income profiles (HIP) is that the covariance between the level of income and future income growth rates must become strongly positive from about age 40. Covariances of income levels and future growth rates therefore have strong identifying power for HIP. We show that adding such moments to an estimation can reverse seemingly strong evidence of HIP. We show this both in a small sample Monte Carlo study and using PSID data. Our results are robust to including a fixed effect correlated with the HIP component.
KW - Faculty of Social Sciences
KW - Income risk
KW - Heterogeneity
KW - Consumption-savings
U2 - 10.1016/j.jedc.2018.07.003
DO - 10.1016/j.jedc.2018.07.003
M3 - Journal article
VL - 94
SP - 24
EP - 42
JO - Journal of Economic Dynamics and Control
JF - Journal of Economic Dynamics and Control
SN - 0165-1889
ER -
ID: 210158329