RT Monograph
SR 00
A1 Arellano, Manuel
A1 Blundell, Richard
A1 Bonhomme, Stéphane
A1 Light, Jack
T1 Heterogeneity of Consumption Responses to Income Shocks in the Presence of Nonlinear Persistence
YR 2023
FD 2023-05
VO 23-1435
SP 68
K1 Nonlinear Income Persistence
K1 Consumption Dynamics
K1 Partial Insurance, Heterogeneity
K1 Panel Data
AB In this paper we use the enhanced consumption data in the Panel Survey of Income Dynamics (PSID) from 2005-2017 to explore the transmission of income shocks to consumption. We build on the nonlinear quantile framework introduced in Arellano, Blundell and Bonhomme (2017). Our focus is on the estimation of consumption responses to persistent nonlinear income shocks in the presence of unobserved heterogeneity. To reliably estimate heterogeneous responses in our un-balanced panel, we develop Sequential Monte Carlo computational methods. We find substantial heterogeneity in consumption responses, and uncover latent types of households with different life-cycle consumption behavior. Ordering types according to their average log-consumption, we find that low-consumption types respond more strongly to income shocks at the beginning of the life cycle and when their assets are low, as standard life-cycle theory would predict. In contrast, high-consumption types respond less on average, and in a way that changes little with age or assets. We examine various mechanisms that might explain this heterogeneity.
T2 TSE Working Paper
PB TSE Working Paper
PP Toulouse
AV Published
LK https://publications.ut-capitole.fr/id/eprint/47813/
UL http://tse-fr.eu/pub/128075