English, Article, Journal or magazine article edition: Inequality over the Business Cycle: Estimating Income Risk Using Micro-Data on Consumption Giorgio Primiceri; Thijs van Rens

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Bookmark: http://trove.nla.gov.au/version/111994
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Inequality over the Business Cycle: Estimating Income Risk Using Micro-Data on Consumption
Author
  • Giorgio Primiceri
  • Thijs van Rens
Physical Description
  • preprint
Notes
  • RePEc:wpa:wuwpma:0212003
  • We use CEX repeated cross-section data on consumption and income, to evaluate the nature of increased income inequality in the 1980s and 90s. We decompose unexpected changes in family income into transitory and permanent, and idiosyncratic and aggregate components, and estimate the contribution of each component to total inequality. The model we use is a linearized incomplete markets model, enriched to incorporate risk-sharing while maintaining tractability. Our estimates suggest that taking risk sharing into account is important for the model fit; that the increase in inequality in the 1980s was mainly permanent; and that inequality is driven almost entirely by idiosyncratic income risk. In addition we find no evidence for cyclical behavior of consumption risk, casting doubt on Constantinides and Duffie’s (1995) explanation for the equity premium puzzle.
  • Consumption, inequality, risk, incomplete markets, business cycle
  • RePEc:upf:upfgen:943
Language
  • English
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