When is market incompleteness irrelevant for the price of aggregate risk (and when is it not)?

In a standard incomplete markets model with a continuum of households that have constant relative risk aversion (CRRA) preferences, the absence of insurance markets for idiosyncratic labor income risk has no effect on the premium for aggregate risk if the distribution of idiosyncratic risk is independent of aggregate shocks and aggregate consumption growth is independent over time. In equilibrium, households only use the stock market to smooth consumption; the bond market is inoperative. Furthermore, the cross-sectional distributions of wealth and consumption are not affected by aggregate shocks. These results hold regardless of the persistence of idiosyncratic shocks, even when households face tight solvency constraints. A weaker irrelevance result survives when we allow for predictability in aggregate consumption growth.     

Consumption smoothing in Russia

This paper uses panel data from rounds V–IX of the Russian Longitudinal Monitoring Survey (RLMS) to examine the extent to which households are able to protect their consumption from fluctuations in their income. It is found that consumption is only partially protected from idiosyncratic shocks to income with food consumption being better protected than non‐food consumption expenditures. This suggests that adjustments in non‐food expenditures may be an important component of the risk management tools of Russian households. The analysis also provides evidence on the extent and nature of the coping strategies adopted by households. It is demonstrated that households complement their self‐insurance strategies, of borrowing, adjusting their labour supply, and selling assets, with informal risk sharing arrangements with households within their community. An examination of the role of sample selection confirmed that these findings are quite robust to this potential source of bias. Furthermore, accounting for the role of measurement and imputation errors in the measure of household income revealed that OLS estimates may yield a misleading picture about the extent to which urban and rural households are insured from idiosyncratic income shocks. JEL classification: D1, R2, P5.     

The Persistence of Income Shocks: Evidence from Rural Indonesia

This paper estimates the persistence of transient income shocks to farm households in rural Indonesia. Persistence is defined as the elasticity of a household's 1997 household per capita income with respect to its 1993 per capita income, controlling for time‐invariant characteristics of the household. Local rainfall levels are used as an exogenous source of transitory variation in 1993 income. Four main conclusions emerge. First, roughly 30% of household income shocks remain after four years. Second, the persistence of negative and positive shocks is approximately equal; if anything, positive shocks last longer. Third, neither positive nor negative income shocks disproportionately affect poor households. Finally, measurement error in income and unobserved household heterogeneity are important sources of bias. These findings cast doubt on common arguments advocating public intervention to stabilize or redistribute income, and suggest that anti‐poverty policy should address more permanent causes of household poverty.     

Is life more risky in the open? Household risk-coping and the opening of China's labor markets

This paper uses a unique panel of data from rural China to analyze the impact of expanding connections to off-farm labor markets on the income and consumption of farm households. With stronger village ties to both migrant and local off-farm labor markets, households in previously autarkic village communities experience reduced exposure to shocks affecting agricultural production. The analyses presented in this paper control for the persistent effect of past shocks influencing income and consumption, household attrition potentially correlated with shocks, and endogeneity of household demographic composition, land holdings and village network connections to migrant and local labor markets.     

Is there a retirement consumption puzzle in Japan? Evidence from a household panel dataset spanning several years

Using a unique long-run panel of Japanese households, this paper examines the changes in consumption at retirement (‘the retirement-consumption puzzle’). Our analysis shows that households’ expenditure does decline after the retirement of the household head and that changes in household composition at retirement cannot fully account for this decline. Changes in life-style/preferences after retirement also do not appear to explain a salient feature of the expenditure decline, namely, the strong correlation between the magnitudes of the expenditure decline and the income decline upon retirement. On the other hand, our finding that the expenditure decline is larger for households with smaller savings and/or that experienced a large unexpected income decline is broadly consistent with the standard LC/PIH augmented with unexpected shocks, while it does not rule out the possibility that there is a relatively small subset of households that are myopic and lack sufficient saving discipline.     

MEASURING POVERTY USING BOTH INCOME AND WEALTH: A CROSS‐COUNTRY COMPARISON BETWEEN THE U.S. AND SPAIN

We study the correspondence between a household's income and its vulnerability to income shocks in two developed countries: the U.S. and Spain. Vulnerability is measured by the availability of wealth to smooth consumption in a multidimensional approach to poverty, which allows us to identify three groups of households: the twice‐poor group, which includes income‐poor households who lack an adequate stock of wealth; the group of protected‐poor households, which are all those income‐poor families with a buffer stock of wealth they can rely on; and the vulnerable‐non‐poor group, including households above the income‐poverty line that do not hold any stock of wealth. Interestingly, the risk of belonging to these groups changes over the life‐cycle in both countries while the size of the groups differs significantly between Spain and the U.S., although this result is quite sensitive to whether the housing wealth component is included in the wealth measure or not.     

Final Energy Demand in Portugal: How Persistent it is and Why it Matters for Environmental Policy

ABSTRACT

The objective of this paper is to examine the degree of persistence in final energy demand in Portugal. Our results suggest that when structural breaks are accounted for, aggregate energy demand and all of its components are stationary. Accordingly, the response to shocks is not permanent. We find, however, strong levels of persistence. Demand for electricity is the most persistent component of aggregate demand while the levels of persistence for petroleum and gas are similar and close to the aggregate level. In turn, demand for coal and biomass are also similar and the least persistent. These results have important implications for the design of macroeconomic policies. Indeed, high persistent levels mean that temporary energy shocks translate into persistent changes in energy demand and thereby in less transient shocks to the overall economy. These results are also important for the design of environmental policies. The fact that energy demand is highly persistent means that the effects of environmental policies will tend to be long lasting. Also, the relatively high persistence of electricity, gas and petroleum and the fact that their levels of persistence are similar suggests that fuel switching policies involving these fuels will be relatively easy to implement.     

Changes in the Income Distribution of the Dutch Elderly between 1989 and 2020: a Dynamic Microsimulation

This paper analyzes the income distribution of the Dutch elderly using a microsimulation model. Microsimulation models allow for detailed estimates of the income distribution. Our model deviates from traditional models by explicitly considering the persistency and heteroskedasticity of real income shocks. In this way, modeling all underlying processes influencing household income becomes less necessary, which can improve the trade‐off between refinement and tractability of microsimulation models. We show the results of three model specifications with different levels of refinement. The results are in line and indicate that between 2008 and 2020, the highest predicted annual growth among the elderly is for median‐income households (about 1.2 percent). High‐income households have a somewhat lower predicted growth (about 1.0 percent) and low‐income households only have a predicted annual growth of 0.5 percent. Inequality therefore seems to increase in the lower part of the distribution, while it will probably decline in the upper part of the distribution.     

Relative Income and Indebtedness: Evidence from Panel Data

We examine patterns of indebtedness in the Panel Study of Income Dynamics, focusing on the period surrounding the housing bubble and its aftermath (i.e., 1999–2009). Leverage increased across households, but most quickly among lower income households during this period. We find additionally that leverage grew faster for households with lower relative income compared to other households in similar demographic groups or within a state controlling for own income. Together, these findings provide evidence for the thesis that the rising indebtedness of households in the U.S. is related to high levels of inequality, and that “Veblen effects,” whereby relative income matters for individual well‐being and decisions, may contribute to rising household indebtedness.     

经济刺激计划与农村消费启动——基于我国农村居民收入分解的实证分析

文章在对我国农村居民收入构成进行分解的基础上,利用协整等计量工具时影响我国农村居民消费的各种因素进行了量化分析,并由此对照我国政府为应对世界经济危机而出台的一揽子经济刺激计划,分析经济刺激计划中各项具体政策措施在促进农村消费方面的作用.实证分析和政策分析的结果表明:(1)当前对农村居民消费具有显著影响的因素主要是农村居民经营性收入、工资性收入及国家财政农村救济费支出;(2)已出台的经济刺激计划,既有消费价格补贴等短期措施,也有旨在提高农村居民收入、完善农村社会保障、优化农村消费环境的长期性政策,时于促进农村消费具有很强的针对性;(3)未来促进农村居民消费仍需继续着眼于各种长期性政策.国家在加大财政支农力度时,应注重提高农林水事业费以外的支农支出比重;(4)县域经济是启动农村消费的关键.未来的政策着力点可以考虑将启动农村消费与发展县域经济、推动城乡一体化发展相结合.     

Risk insurance in a transition economy

The hypothesis of Pareto‐optimal risk‐sharing is tested in a transition economy using a new dataset of a representative sample of 364 rural households from Romania. Income shocks are identified as instances of adverse weather, crop failure, animal diseases, illness, and unemployment spells. Despite limited participation of Romanian rural households in formal insurance and credit markets, we fail to reject the hypothesis of full insurance of total non‐durable consumption and its components. Survey responses indicate that the main channels of consumption smoothing are self‐insurance (for adverse weather, crop failure and animal diseases), public transfers (for unemployment spells, maternity and childcare), and to a lesser extent, family ties. We find that adverse weather is associated with higher growth rates of non‐food expenditures. Furthermore, richer households are better able to cope with crop failure than poorer households. An alternative explanation to our not rejecting the hypothesis of full insurance is that some shocks to consumption (such as illness) play the role of preference shifters of the utility function.     

Do Savings and Credit Institutions Reduce Vulnerability? New Evidence From Mexico

This study examines whether membership in a savings and credit society (SACP) reduces vulnerability to poverty, using a representative survey from the National Savings and Financial Services Bank. The sample of households includes those that are and are not members of a SACP during 2004?2007. This evidence indicates that membership improves income; furthermore, membership decreases the variance in annual household per capita income. Both effects reduce the probability that somebody becomes poor. Finally, the results offer support for the proposition that households that join a SACP have better abilities to smooth consumption in the face of adverse shocks, and thus are less susceptible to shocks, than do households that are not members.     

收入差距、有效需求与自主创新

文章利用中国地区层面的面板数据,实证检验了收入差距与自主创新之间的关系。研究发现,收入差距与中国自主创新呈倒"U"形关系,收入差距既可以通过扩大创新产品的需求规模促进国家或地区的技术创新,又可以通过抑制消费结构升级最终阻碍国家或地区技术创新能力的提升;收入差距对技术创新的影响存在显著的区域差异性,在东部和中部地区其影响显著为正,而在西部地区其影响为负但不显著;当前,我国大部分地区的城乡收入比均处于倒"U"形曲线的上升阶段,对这些地区而言,适当的收入差距促进了其自主创新能力的提升。     

Inequality of Income and Consumption in the U.S.: Measuring the Trends in Inequality from 1984 to 2011 for the Same Individuals

This paper examines the distribution of income and consumption in the U.S. using one dataset that obtains measures of both income and consumption from the same set of individuals. We develop a set of inequality measures that show the increase in inequality during the past 27 years using the 1984–2011 Consumer Expenditure Survey. We find that the trends in income and consumption inequality are similar between 1984 and 2006, and diverge during and after the Great Recession. For the entire 27‐year period we find that consumption inequality increases almost as much as does income inequality.     

On the persistence of income shocks over the life cycle: Evidence,theory, and implications

How does the persistence of earnings change over the life cycle? Do workers at different ages face the same variance of idiosyncratic earnings shocks? This paper proposes a novel specification for residual earnings that allows for an age profile in the persistence and variance of labor income shocks. We show that the statistical model is identified, and we estimate it using Panel Study of Income Dynamics data. We find that shocks to earnings are only moderately persistent (around 0.75) for young workers. Persistence rises with age, up to unity, until midway through life. The variance of persistent shocks exhibits a U-shaped profile over the life cycle (with a minimum of 0.01 and a maximum of 0.05). These results suggest that the standard specification in the literature (with age-invariant persistence and variance) cannot capture the earnings dynamics of young workers. We also argue that a calibrated job turnover model can account for these nonflat profiles. The key idea is that workers sort into better jobs and settle down as they age; in turn, magnitudes of wage growth rates decline, thereby decreasing the variance of shocks. Furthermore, the decline in job mobility results in higher persistence. Finally, we investigate the implications of age profiles for consumption–savings behavior. The welfare cost of idiosyncratic risk implied by the age-dependent income process is up to 1.6 percent of lifetime consumption lower compared with its age-invariant counterpart. This difference is mostly due to a higher degree of consumption insurance for young workers, for whom persistence is moderate. These results suggest that age profiles of persistence and variances should be taken into account when calibrating life-cycle models.     

Consumption smoothing in Russia1

Using a panel from the Russian Longitudinal Monitoring Survey (1994–2004), this paper investigates to what extent Russian households have been able to maintain their living standards while suffering income shocks. Consumption smoothing is modelled by means of an equilibrium correction mechanism, which disentangles short‐run dynamics and long‐run equilibrium adjustments. GMM estimation is used to control for individual household effects in the presence of dynamics. Additionally, we differentiate between food and non‐food consumption, positive and negative shocks, rural and urban areas, and several levels of poverty risk. We find that dynamics are important in the consumption equation, and that estimates are sensitive to imputation errors in home food production. No strong claims can be made regarding heterogeneity in smoothing behaviour.     

Life Course Perspective on Economic Shocks and Income Inequality Through Age-Period-Cohort Analysis: Evidence From Finland

Utilizing age-period-cohort analysis, this paper examines the development of income distribution across periodic economic fluctuations in relation to cohorts and age groups. The empirical analysis is based on the Finnish Income Distribution Statistics and Household Expenditure Surveys covering the period of 1966–2015. The findings suggest that the period and cohort effects can be identified as the main effects on relative income, while the age effects have no meaningful impact when the control variables are taken into account. This result reveals a connection between the effects of economic shocks and cohort placement on labor market entry. Additionally, absolute income analysis suggests that economic shocks create stagnation points in income development, which are especially detrimental to cohorts who are transitioning into labor markets. Additionally, middle-income attainment has not changed due to periodic shocks but rather is related to inter-cohort inequalities and relative income differences, where the baby boomer generation is a clear winner.     

An empirical analysis of income disparity and consumption in China

Using China’s provincial data from 1991 to 2005, this paper analyzes the impact of urban income disparity on their consumption based on static and dynamic panel data models and state space model. The GMM and Kalman Filter methods are used in the estimation and the variables such as income and price are controlled. The empirical results show that the elasticity of permanent income to consumption is much higher than that of temporary income; and the impact of income disparity on consumption is negative and substantial. A rise of 0.01 in the absolute value of Gini coefficient will cause a reduction of 0.35% in consumption on average. The effects fluctuate with the change of economic structure, consumption expectation and economic cycle. In the beginning years of 1990s, it is positive to enlarge income disparity moderately for consumption. It is the year of 1996 that the negative effect first appears in China. During 1998–2004, an increase of 0.01 to the absolute value of Gini coefficient will result in the reduction of consumption to fluctuate between 0.37% and 0.54%. In order to enlarge domestic demand and promote consumption, the focus should be the improvement of permanent income instead of temporary income, and the vigorous policies to reduce income disparity.     

Intergenerational Income Persistence in Urban China

Intergenerational income elasticities are estimated using samples for urban China (covering many cities) for the years 1995 and 2002 and compared with results from other studies. We find that the income relation between the pairs—sons and fathers, sons and mothers, and daughters and mothers—are in 2002 all similar in magnitude. In contrast the relation between daughters' and fathers' income is weaker. The income relationship between offspring and mothers was weaker in 1995 than in 2002. Our preferred estimates of income persistence for the son/father pairs of 0.47 for 1995 and 0.53 for 2002 are higher than those which have been reported in the literature for several high‐income countries with large welfare states. The strength of the income link between sons and fathers in urban China appears to be not very different from what has been reported for countries such as Brazil, Chile, and the U.S.     

累进性劳动所得税、失业波动与内生稳定器——一个动态新凯恩斯主义的视角

将累进性劳动所得税引入NKMP—DSGE模型中考察失业波动与累进性税收的宏观效应。贝叶斯脉冲响应函数表明,外生冲击对于就业与失业具有不同的冲击效应,因而忽略失业可能引起结论的偏误;失业的贝叶斯冲击分解结果表明,货币政策冲击是推动我国失业波动最重要的力量,并且我国劳动力市场存在显在的“失业回滞”。进一步,通过模型比较发现,累进性劳动所得税具有内生稳定器的作用。在失业问题日益严峻的背景下,采用对劳动力市场做出反应的货币政策机制以降低失业,并使用内生稳定器缓和经济波动,将可能实现降低失业与缓和经济波动的双重效果。