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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Lambertini, Luisa / Nimark, Kristoffer / Wang, Pengfei

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1935-1690
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Life Cycle Dynamics of Income Uncertainty and Consumption

James A. Feigenbaum / Geng Li
Published Online: 2012-05-23 | DOI: https://doi.org/10.1515/1935-1690.2258

We propose a method for estimating household income uncertainty that does not impose restrictions on the underlying income shocks or assumptions about household behaviors. We measure income uncertainty as the variance of linear projection errors at various future horizons, up to 25 years ahead, conditional on only the information available to households when the projection is made. Our uncertainty estimates change substantially over the life cycle. We calibrate an income process to match our estimates, allowing the variances of both transitory and persistent shocks to change over the life cycle. Relative to previous studies, we find lower and less persistent income uncertainties that call for a life cycle consumption profile with a less pronounced hump.

Keywords: income uncertainty; projection errors; life cycle dynamics; precautionary saving; consumption hump

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Published Online: 2012-05-23


Citation Information: The B.E. Journal of Macroeconomics, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/1935-1690.2258.

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©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston. Copyright Clearance Center

Citing Articles

Here you can find all Crossref-listed publications in which this article is cited. If you would like to receive automatic email messages as soon as this article is cited in other publications, simply activate the “Citation Alert” on the top of this page.

[1]
James Feigenbaum and Geng Li
Oxford Economic Papers, 2015, Volume 67, Number 4, Page 963
[2]
Magnus Gustavsson and Pär Österholm
Journal of Economic Dynamics and Control, 2014, Volume 47, Page 152

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