http://www.federalreserve.gov/pubs/feds/2011/201125/201125abs.html
Complete Description:Abstract: We study the trend in household income uncertainty using a novel approach that measures income uncertainty as the variance of forecast errors at each future horizon separately without imposing parametric restrictions on the underlying income shocks. We find that household income uncertainty has risen significantly and persistently since the early 1970s. For example, our measure of near-future uncertainty in total family non-capital income rose about 40 percent between 1971 and 2002. This rising uncertainty is likely due to the increase in variances of both persistent and transitory income shocks. Although the increase in uncertainty was widespread, the increase was most pronounced among single-earner households and high-income households. A parsimoniously calibrated Aiyagari (1994) model is solved to illustrate how rising income uncertainty affects aggregate saving.
Date Published:Sunday, May 01, 2011
Author:James Feigenbaum and Geng Li
Funding Agency: Board of Governors of the Federal Reserve System
Type: Working paper;
Source: Survey data;
Language: English
Audience: Researcher