Higher-order income risk over the business cycle

Arbeitspapier

We extend the canonical income process with persistent and tran- sitory risk to cyclical shock distributions with left-skewness and excess kurtosis. We estimate our income process by GMM for US household data. We find countercyclical variance and procyclical skewness of per- sistent shocks. All shock distributions are highly leptokurtic. The tax and transfer system reduces dispersion and left-skewness. We then show that in a standard incomplete-markets life-cycle model, first, higher- order risk has sizable welfare implications, which depend on risk atti- tudes; second, it matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, it has non-trivial implications for self-insurance against shocks.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ICIR Working Paper Series ; No. 36/21

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: Idiosyncratic Income Risk ; Cyclical Income Risk ; Life-Cycle Model

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Busch, Christopher ; Ludwig, Alexander
• Ereignis: Veröffentlichung
• (wer): Goethe University Frankfurt, International Center for Insurance Regulation (ICIR)
• (wo): Frankfurt a. M.
• (wann): 2021

Weitere Informationen

• Handle: http://hdl.handle.net/10419/231502
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ