Advance Information and Consumption Insurance: Evidence from Panel Data

Arbeitspapier

We investigate whether US households possess advance information about their future income and what this means for consumption insurance. Based on insights from a theoretical model, we propose a new test to detect advance information, which requires only panel data on consumption and income. Using the Panel Study of Income Dynamics, we find---in contrast to the existing literature---strong support for the existence of advance information. We use this evidence to estimate a standard incomplete markets model and find that advance information reduces households' income forecast errors by 15%. Our estimation results imply that 27% of all unexpected income changes are passed through to consumption. Ignoring advance information leads to a significant overestimation of consumption insurance and even more so at the bottom of the wealth distribution.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Tinbergen Institute Discussion Paper ; No. TI 2022-032/VI

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Consumer Economics: Empirical Analysis ; Personal Income, Wealth, and Their Distributions ; Incomplete Markets ; Criteria for Decision-Making under Risk and Uncertainty ; Macroeconomics: Consumption; Saving; Wealth
• Thema: income risk ; advance information ; consumption insurance ; panel data ; incomplete markets

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Pedroni, Marcelo ; Singh, Swapnil ; Stoltenberg, Christian
• Ereignis: Veröffentlichung
• (wer): Tinbergen Institute
• (wo): Amsterdam and Rotterdam
• (wann): 2022

Weitere Informationen

• Handle: http://hdl.handle.net/10419/263952
• Letzte Aktualisierung: 10.03.2025, 11:46 MEZ