In this paper we highlight the importance of the PSID in understanding income dynamics and consumption insurance. We explore the nonlinear nature of income shocks and describe a new quantile-based panel data framework for income dynamics. In this approach the persistence of past income shocks is allowed to vary according to the size and sign of the current shock. The model provides a good match with data and we confirm the results on population register data from Norway. Using the enhanced consumption and asset data in the PSID, nonlinear persistence is shown to have key implications for consumption insurance.
Authors
CPP Co-Director
Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.
Research Fellow Centre for Monetary and Financial Studies (CEMFI)
Manuel is a Research Fellow of the IFS and a Professor of Econometrics at CEMFI, Madrid.
Professor of Economics University of Chicago
Journal article details
- DOI
- 10.1257/pandp.20181049
- Publisher
- The IFS
- Issue
- Volume 108, March 2018, pages 281-286
Suggested citation
M, Arellano and R, Blundell and S, Bonhomme. (2018). 'Nonlinear Persistence and Partial Insurance: Income and Consumption Dynamics in the PSID, forthcoming' 108(2018), pp.281–286.
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