Events at CERGE-EI

Friday, 10 January, 2020 | 15:00 | Macro Research Seminar

Martín Almuzara (Job Talk) “Heterogeneity in Transitory Income Risk”

Martín Almuzara

CEMFI (Centro de estudios monetarios y financieros), Madrid, Spain

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Author: Martín Almuzara

Abstract: I propose a new framework to distinguish between permanent and transitory income changes that permits various forms of cross-sectional heterogeneity. This includes a model in which log earnings are the sum of a permanent component and a transitory innovation with household-specific variance; permanent income and the transitory income variance are, moreover, potentially correlated. I establish nonparametric identification results and introduce a flexible estimation method. Using data from the Panel Study of Income Dynamics, I find that (i) heterogeneity in transitory risk is sizable with a highly asymmetric distribution and (ii) permanent income and transitory risk have a negative nonlinear relationship. Finally, I reassess the evidence on nonlinear transmission of income shocks.

Keywords: Income process, nonparametric identification, specification tests.

JEL  Classification: C23, C52, D31.
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Full Text: “Heterogeneity in Transitory Income Risk”