In this course, we will study income risk sharing with incomplete markets. This will tackle two, broad topics: what are the stochastic processes driving the shocks and how do individuals self-insure. As an extension of the second topic, but really comprising a third topic, we will look at how public policy and safety net programs in this context.
We introduced a life-cycle incomplete markets model, based on Storesletten Telmer & Yaron (2004) and described how to use either the cross-sectional age profile or the within-individual covariance of income changes to estimate an income process as described in Guvenen (2005).
Links:
https://ideas.repec.org/a/eee/moneco/v51y2004i3p609-633.html
https://ideas.repec.org/a/red/issued/06-15.html
We talked about empirical measures of "pass-through" and excess sensitivity, beginning with Deaton & Paxson (1994) and through Blundell, Pistaferri & Preston (2008).
Links:
https://www.jstor.org/stable/2138618
https://www.aeaweb.org/articles?id=10.1257/aer.98.5.1887
To provide an analytical basis for households' consumption response, we studied a simplified (no-tax) version of Heathcote, Storesletten & Violante (2014)
Links:
https://www.aeaweb.org/articles?id=10.1257/aer.104.7.2075
Earnings changes have important, higher-order moments. We talk about how to observe them, how to feed them into a model and how consumers might respond. This leans heavily on Guvenen, Karahan, Ozkan & Song (2021) and De Nardi Fella & Paz-Pardo (2020)
Links:
https://ideas.repec.org/p/red/sed015/1183.html
https://ideas.repec.org/a/oup/jeurec/v18y2020i2p890-926..html
We talked about a BBP insurance statistics within the context of a "standard incomplete markets" model. This lecture essentially summarizes Kaplan & Violante (2010)
Links:
https://www.aeaweb.org/articles?id=10.1257/jep.32.3.167
In line with some discussion of "expected income changes" we reviewed evidence on the spending response to potentially exogenous income changes: stimulus payments
Links:
https://www.aeaweb.org/articles?id=10.1257/aer.103.6.2530
https://www.aeaweb.org/articles?id=10.1257/mac.6.4.107
https://www.nber.org/papers/w15421
https://libertystreeteconomics.newyorkfed.org/2017/11/understanding-permanent-and-temporary-income-shocks.html
Again, exploiting unit-root shocks, Carroll's Buffer Stock Savings paper gives us a tractable way to understand the dynamics of consumption and cash-at-hand, normalizing both by the permanent shock
Links:
https://www.jstor.org/stable/2951275
Homework is due! We look at some of my code, talk about what it means to "clean" data
Links:
https://www.bissell.com/
https://faculty.idc.ac.il/Eckstein/fls.html
https://econpapers.repec.org/software/redccodes/09-214.htm
Endogenous borrowing constraints and consumer default: what does this do to the risk households face and what does it tell us about the distribution of MPCs? We'll focus on Chatterjee Corbae Rios-Rull Nakajima (2007) and Livshits MacGee and Tertilt (2007)
Links:
https://ideas.repec.org/a/aea/aecrev/v97y2007i1p402-418.html
https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1468-0262.2007.00806.x
Are debts spread as an income process would predict? An important literature has focused on whether the asset distribution can be rationalized, but what about debts and risk premia? We'll discuss Castañeda, Díaz Giménez & Ríos Rull (2003) and Athreya, Mustre-del-Río & Sánchez (2019)
Links:
https://www.journals.uchicago.edu/doi/abs/10.1086/375382
https://academic.oup.com/rfs/article/32/10/3851/5305595
The first assignment will use one of the US sources of panel data to estimate a parsimonious AR(1) + i.i.d process. Some of the useful sources:
https://psidonline.isr.umich.edu/
https://www2.nber.org/data/sipp.html or https://ceprdata.org/sipp-uniform-data-extracts/