Income uncertainty and aggregate consumption

Arbeitspapier

We investigate the relevance of aggregate and consumer-specific income uncertainty for aggregate consumption changes in the US over the period 1952-2001. Theoretically, the effect of income risk on consumption changes is decomposed into an aggregate and into a consumer-specific part. Empirically, aggregate risk is modelled through a GARCH process on aggregate income shocks and individual risk is modelled as an unobserved component and obtained through Kalman filtering. Our results suggest that aggregate income risk explains a negligible fraction of the variance of aggregate consumption changes. A more important part of aggregate consumption changes is explained by the unobserved component. The interpretation of this component as reflecting consumer-specific income risk is supported by the finding that it is negatively affected by received consumer transfers.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 77

Classification and Topics

• Classification: Wirtschaft ; Macroeconomics: Consumption; Saving; Wealth
• Subject: income uncertainty ; consumption ; precaution ; state space models ; GARCH errors ; unobserved component ; Bayesian. ; Einkommen ; Risiko ; Privater Konsum ; ARCH-Modell ; Bayes-Statistik ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Pozzi, Lorenzo
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/144291
• Last update: 10.03.2025, 11:44 AM CET