English, Article, Journal or magazine article edition: Income Uncertainty and Aggregate Consumption L. Pozzi

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Bookmark: http://trove.nla.gov.au/version/14807
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Income uncertainty and aggregate consumption
Author
  • L. Pozzi
Physical Description
  • preprint
Notes
  • RePEc:rug:rugwps:05/​334
  • We investigate the relevance of aggregate and consumer-specific income uncertainty for aggregate consumption changes in the US over the period 1952-2001. Theoretically, the effect of income risk on consumption changes is decomposed into an aggregate and into a consumer-specific part. Empirically, aggregate risk is modelled through a GARCH process on aggregate income shocks and individual risk is modelled as an unobserved component and obtained through Kalman filtering. Our results suggest that aggregate income risk explains a negligible fraction of the variance of aggregate consumption changes. A more important part of aggregate consumption changes is explained by the unobserved component. The interpretation of this component as reflecting consumer-specific income risk is supported by the finding that it is negatively affected by received consumer transfers.
  • income uncertainty, consumption, precaution, state space models, GARCH errors, unobserved component, Bayesian.
  • RePEc:nbb:reswpp:200511-2
Language
  • English
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