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Čt 06.04.2017

Christian Stoltenberg, Ph.D. (U. of Amsterdam) “How Much Do Households Really Know About Their Future Income?”

Christian Stoltenberg, Ph.D.

University of Amsterdam, The Netherlands

Authors: Swapnil Singh and Christian A. Stoltenberg

Abstract: We develop a consumption risk sharing model that can in a systematic and consistent way distinguish between households' perceived income uncertainty and income uncertainty as measured by an econometrician. Households receive signals on their future disposable income that can drive a wedge between the two uncertainties. Using U.S. micro data to inform the general equilibrium model, we find support for a systematic uncertainty gap: households know more than econometricians such that their perceived income uncertainty is at least 12 percent lower than the uncertainty estimated by an econometrician that is typically used in risk sharing models. For this uncertainty gap, the model jointly explains three distinct risk sharing measures that are not captured in the standard model without a gap: (i) the cross-sectional variance of consumption, (ii) the covariance of consumption with income growth, and (iii) the income-conditional mean of household consumption.

Full Text:  “How Much Do Households Really Know About Their Future Income?”