skip to content

Faculty of Economics

Journal Cover

Blundell, R., Low, H. W. and Preston, I.

Decomposing changes in income risk using consumption data

Quantitative Economics

Vol. 4(1) pp. 1-37 (2013)

Abstract: We develop a new approach to the decomposition of income risk within a nonstationary model of intertemporal choice. The approach allows for changes in income risk over the life cycle and across the business cycle, allowing for mixtures of persistent and transitory components in the dynamic process for income. We focus on what can be learned from repeated cross-section data alone. Evidence from a stochastic simulation of consumption choices in a nonstationarity environment is used to show the robustness of the method for decomposing income risk. The approach is used to investigate the changes in income risk in Britain across the inequality growth period from the late 1970s to the late 1990s. We document peaks in the variance of permanent shocks at the time of recessions.

JEL Codes: C30, D52, D91

Author links:

Publisher's Link:

Papers and Publications

Recent Publications

Ambrus, A. and Elliott, M. Investments in Social Ties, Risk Sharing, and Inequality Review of Economic Studies [2020]

Carvalho, V. M. and Grassi, B. Large Firm Dynamics and the Business Cycle American Economic Review [2019]

Aidt, T. S., Asatryan, Z., Badalyan, L. and Heinemann, F. Vote Buying or (Political) Business (Cycles) as Usual? Review of Economics and Statistics [2020]

Acconcia, A., Corsetti, G. and Simonelli, S. Liquidity and Consumption: Evidence from Three Post-earthquake Reconstruction Programs in Italy American Economic Journal: Macroeconomics [2020]