Can Consumers Distinguish Persistent from Transitory Income Shocks?

Research output: Working paper › Research

Standard

Can Consumers Distinguish Persistent from Transitory Income Shocks? / Druedahl, Jeppe; Jørgensen, Thomas.

2018.

Research output: Working paper › Research

Harvard

Druedahl, J & Jørgensen, T 2018 'Can Consumers Distinguish Persistent from Transitory Income Shocks?'. https://doi.org/10.2139/ssrn.3118090

APA

Druedahl, J., & Jørgensen, T. (2018). Can Consumers Distinguish Persistent from Transitory Income Shocks? CEBI Working Paper Series No. 03/18 https://doi.org/10.2139/ssrn.3118090

Vancouver

Druedahl J, Jørgensen T. Can Consumers Distinguish Persistent from Transitory Income Shocks? 2018 Feb 15. https://doi.org/10.2139/ssrn.3118090

Author

Druedahl, Jeppe ; Jørgensen, Thomas. / Can Consumers Distinguish Persistent from Transitory Income Shocks?. 2018. (CEBI Working Paper Series; No. 03/18).

Bibtex

@techreport{765ea942ed8344f9b397bb0e7912c7d1,
title = "Can Consumers Distinguish Persistent from Transitory Income Shocks?",
abstract = "We study whether households can distinguish persistent from transitory income shocks, and the implications for consumption-saving behavior. We construct a novel consumption-saving model where the household must infer the persistent component of its income process from actual income realizations together with an additional noisy private signal. We first show that the degree of imperfect information has important consequences for the interpretation of transmission parameters to persistent and transitory income shocks. A large transitory transmission parameter can e.g. be estimated despite of a low marginal propensity to consume because the short run covariance between income growth and consumption growth increases when households cannot distinguish persistent from transitory income shocks. We further show that the households{\textquoteright} degree of knowledge can be identified from panel data on income and consumption. Finally, we estimate a high degree of knowledge in the Panel Study of Income Dynamics.",
keywords = "Consumption, Saving, Income Shocks, Learning, Consumer Information",
author = "Jeppe Druedahl and Thomas J{\o}rgensen",
year = "2018",
month = feb,
day = "15",
doi = "10.2139/ssrn.3118090",
language = "English",
series = "CEBI Working Paper Series",
number = "03/18",
type = "WorkingPaper",

}

RIS

TY - UNPB

T1 - Can Consumers Distinguish Persistent from Transitory Income Shocks?

AU - Druedahl, Jeppe

AU - Jørgensen, Thomas

PY - 2018/2/15

Y1 - 2018/2/15

N2 - We study whether households can distinguish persistent from transitory income shocks, and the implications for consumption-saving behavior. We construct a novel consumption-saving model where the household must infer the persistent component of its income process from actual income realizations together with an additional noisy private signal. We first show that the degree of imperfect information has important consequences for the interpretation of transmission parameters to persistent and transitory income shocks. A large transitory transmission parameter can e.g. be estimated despite of a low marginal propensity to consume because the short run covariance between income growth and consumption growth increases when households cannot distinguish persistent from transitory income shocks. We further show that the households’ degree of knowledge can be identified from panel data on income and consumption. Finally, we estimate a high degree of knowledge in the Panel Study of Income Dynamics.

AB - We study whether households can distinguish persistent from transitory income shocks, and the implications for consumption-saving behavior. We construct a novel consumption-saving model where the household must infer the persistent component of its income process from actual income realizations together with an additional noisy private signal. We first show that the degree of imperfect information has important consequences for the interpretation of transmission parameters to persistent and transitory income shocks. A large transitory transmission parameter can e.g. be estimated despite of a low marginal propensity to consume because the short run covariance between income growth and consumption growth increases when households cannot distinguish persistent from transitory income shocks. We further show that the households’ degree of knowledge can be identified from panel data on income and consumption. Finally, we estimate a high degree of knowledge in the Panel Study of Income Dynamics.

KW - Consumption

KW - Saving

KW - Income Shocks

KW - Learning

KW - Consumer Information

U2 - 10.2139/ssrn.3118090

DO - 10.2139/ssrn.3118090

M3 - Working paper

T3 - CEBI Working Paper Series

BT - Can Consumers Distinguish Persistent from Transitory Income Shocks?

ER -

ID: 248849849