learning your earning are labor income shocks really very persistent in this paper we examine the risk situation facing individuals in the labor market the current consensus in the literature is that the labor income process has a large random walk component we argue two points first the estimates of persistence from income data appear to be upward biased due to the omission of heterogeneity in income pro les across the population that would be implied for example by a human capital model with heterogeneity when we allow for dierences in pro les the estimated persistence falls from 0 99 to about 0 8 moreover the main evidence against pro le heterogeneity in the existing literature that the autocorrelations of income changes are small and typically negative is also replicated by the pro le heterogeneity model we estimate casting doubt on the previous interpretation of this evidence second we embed this process in a life cycle model to examine how it alters individuals consumption saving decision we assume that as seems plausible individuals do not know their pro les exactly at the beginning of life but learn in a bayesian way with successive income observations we nd that learning is very slow and aects consumption decision throughout the life cycle the model generates substantial rise in consumption inequality over the life cycle which matches empirical observations deaton and paxson 1994 moreover the shape of the age inequality pro le is non concave as in the data but unlike in a model with very persistent shocks finally the consumption pro les of college graduates are steeper than those of high school graduates in the model consistent with the data because they face a wider dispersion of and hence uncertainty about income growth rates overall this evidence indicates that income shocks may be signi cantly less persistent than what is currently assumed

the impact of natural disaster on energy consumption international evidence abstract this research shows that natural disasters may hurt energy consumption by using data on 123 countries over the period 1990 2015 and classifying them according to their economic development level and region based on world development indicators we employ a two step system gmm method to examine the effect of natural disasters on energy consumption presenting findings that support our hypotheses in the models and show a strong negative effect for low income countries or those in the africa region after considering an alternative proxy for natural disaster we implement quantile regression methods their results find that natural disasters exhibit a negative and significant impact on oil renewable and nuclear energy consumptions the quantile regression models used in the robustness check present that the effects are stronger for low level energy consumption economies

does market incompleteness matter this paper argues that incompleteness of intertemporal financial markets has little effect on welfare prices or consumption in an economy with a single consumption good provided that traders are long lived and patient a riskless bond is traded shocks are transitory and there is no aggregate risk in an economy with aggregate risk a similar conclusion holds provided traders share the same crra utility function and the right assets are traded examples demonstrate that these conclusions need not hold if the wrong assets are traded or if the economy has multiple consumption goods

earnings instability and earnings inequality of males in the united states 1967 1991 although much research has focused on recent increases in annual earnings inequality in the united states the increases could have come from either of two sources the distribution of lifetime earnings could have become more unequal or the receipt of lifetime earnings could have become more unstable based on an analysis of the 1968 92 panel study of income dynamics we find that lifetime earnings inequality increased during the early 1980s and that earnings instability increased during the 1970s we also examine how these trends are related to changes in the distribution of wages and hours and the returns to education

cyclical dynamics in idiosyncratic labor market risk is individual labor income more risky in recessions this is a difficult question to answer because existing panel data sets are so short to address this problem we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced variation in the cross sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930 even though our data do not begin until 1968 we implement this estimator using household level labor earnings data from the panel study of income dynamics we estimate that idiosyncratic risk is i highly persistent with an annual autocorrelation coefficient of 0 95 and ii strongly countercyclical with a conditional standard deviation that increases by 75 percent from 0 12 to 0 21 as the macroeconomy moves from peak to trough

the relationship between regional natural gas markets and crude oil markets from a multi scale nonlinear granger causality perspective this study first decomposes the daily returns of regional gas and crude oil at different time scales using the ensemble empirical mode decomposition eemd method it then investigates the causality relationship between each pair of components at the different time scales by employing the linear and nonlinear granger causality tests for the original returns series this study finds that unidirectional linear granger causality exists from crude oil markets to north american and european gas markets however for nonlinear characteristics the crude oil and regional gas markets exhibit bidirectional nonlinear granger causality on the medium term time scale a bidirectional nonlinear spillover effect is found between the markets the long term trends for the markets suggest a significant linear relationship however no nonlinear spillover effect is found between the crude oil and regional gas markets

how important are idiosyncratic shocks evidence from labor supply the notion that individuals face idiosyncratic labor market uncertainty is a common one government programs such as unemployment insurance and social security are motivated by such an idea economic theory ranging from labor supply to savings behavior to asset pricing often presupposes that such risks are important a number of papers however have questioned this orthodoxy sumru altug and robert a miller 1990 for instance are unable to reject a set of factor structure restrictions implied by complete markets john h cochrane 1991 and barbara j mace 1991 find evidence of consumption insurance although not against all types of risks robert m townsend 1994 documents evidence of risk sharing in indian villages michael p keane and kenneth i wolpin 1997 argue that 90 percent of the labor market uncertainty faced by a group of males is resolved by age 16 other studies have suggested the opposite papers by joseph g altonji et al 1991 orazio attanasio and steven j davis 1996 and attanasio and guglielmo weber 1992 as well as some evidence in cochrane 1991 and mace 1991 suggest that risk sharing is far from complete in particular for low frequency shocks angus deaton and christina paxson 1994 show that inequality in labor earnings total income and consumption increases with age they suggest that this is difficult to reconcile with standard models of complete consumption insurance in storesletten et al 2000 we ask similar questions using a general equilibrium life cycle model we conclude that increasing inequality with age consumption inequality in particular is difficult to explain in the absence of uninsured idiosyncratic shocks received throughout the working years we argue that between 40 percent and 50 percent of an individual s lifetime uncertainty remains unresolved prior to entering the workforce this paper further examines the implications of increasing inequality with age we begin by asking if a very different model one which features full risk sharing can account for the data the idea which deaton and paxson 1994 attribute to steven davis is that increasing income and consumption inequality can arise in a perfect insurance setting if i dispersion in labor productivity increases with age and ii preferences are nonseparable between leisure and consumption if this is true an efficient allocation may feature increasing consumption dispersion because higher productivity workers will supply relatively more labor and be compensated with more consumption we develop a specific model and find that for plausible parameter values this is exactly what happens what also happens however is that such an allocation features increasing inequality in hours worked using data from the panel study on income dynamics psid we show that inequality in hours worked is roughly constant across age this casts doubt on the full risksharing model and strengthens the argument in favor of uninsurable idiosyncratic risk the remainder of our paper provides a more general discussion of the evidence on inequality and age and how this suggests an important role for idiosyncratic labor market shocks

the nature of precautionary wealth abstract this paper uses the panel study of income dynamics to provide some of the first direct evidence that wealth is systematically higher for consumers with predictably greater income uncertainty however the apparent pattern of precautionary wealth is not consistent with a standard parameterization of the life cucle model in which consumers are patient enough to begin saving for retirement early in life wealth is estimated to be far less sensitive to uncertainty than implied by that model instead our results suggest that over most of their working life time consumers behave in accordance with the buffer stock models of saving described in carroll 1992 1997 or deaton 1991 in which consumers hold wealth principally to insulate consumption against near term fluctuations in income

growth rate heterogeneity and the covariance structure of life cycle earnings using u s panel data on adult males i compare the profile heterogeneity model of earnings dynamics in which the earnings experience profile varies across individuals to a competing model in which earnings has a unit root the latter specification enjoys increasing popularity among researchers my analysis questions this favor suggesting the profile heterogeneity model provides a more consistent representation of the data i also provide new estimates of the variation in earnings growth rates previous evidence is from relatively unrepresentative samples individuals one standard deviation above the mean enjoy a 20 30 earnings advantage in just 10 years

monetary policy and regional availability of debt financing the relative availability of bond and bank financing should affect the firm s external financing and investment decisions we define a measure that proxies for the regional borrowing inflexibility to substitute between bank and bond financing debt inflexibility debt inflexibility tilts the firm s financial structure towards equity and reduces investment the impact is stronger during the period of tight monetary policy particularly for smaller firms and firms without banking relationships debt inflexibility increases the sensitivity of cash holdings to cash flows reduces the likelihood of dividend payment and makes the firm more likely to pay equity in mergers and acquisitions

determinants of the crude oil futures curve inventory consumption and volatility abstract since 2008 the wti oil futures curve has been positively sloped for extended periods we test whether changes in inventory alone can explain this atypically long contango to do this we estimate monthly vars of the cme wti oil futures spread and oecd and u s inventory in line with standard theory and add petroleum consumption and implied volatility to the vector of endogenous variables when we model the futures spread as one continuous series results confirm two way causation between inventory and the futures curve as predicted by the theory of storage however when we separate negative and positive futures spreads we find that two way causation between the futures spread and u s inventory breaks down shocks to oecd petroleum consumption cause more negative spreads and shocks to u s consumption cause more positive spreads in addition to inventory driven changes and increases in volatility directly raise positive spreads these new causal channels have become significant since 2008 and can be related to higher inventory inelastic supply of oil and uncertainty about global economic conditions

a theory of wage dynamics a dynamic equilibrium model of long term implicit labour contracts under incomplete but symmetric information is developed workers are assumed to be risk averse and of unknown ability or productivity risk neutral firms learn as do workers about each worker s productivity by observing the worker s output over time it is shown that equilibrium contracts provide for wages which never decline with age and increase only when the worker s market value increases above his current wage in addition to characterizing the equilibrium wage contract we also derive some of its implications for the behaviour of aggregate wages across various groups of workers these implications explain some findings in the recent empirical literature on ageearnings profiles in particular our model can explain why earnings may be positively related to experience even after controlling for productivity as some empirical studies have indicated

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

the evolution of wages over the lifecycle insights from intergenerational connections this article uses intergenerational information to improve our understanding of lifecycle wage dynamics i present a simple statistical model that relates the wages of workers at different points in their lifecycle to the earnings of their parents i decompose cross sectional variance of wages into a permanent component related to parental background a permanent component unrelated to parental background and a transitory component data from the panel study of income dynamics psid suggests that intergenerational relationships are stronger when measured later in the lifecycle of the son this implies that the permanent parent related component is increasingly important for wage determination as workers grow older this is not consistent with wage evolution through persistent random shocks rather it is consistent with human capital models and learning models of wage evolution

information heterogeneity and market incompleteness information is market consistent if agents only use market prices to infer the underlying states of the economy this paper applies this concept to a stochastic growth model with incomplete markets and heterogeneous agents the economy with market consistent information can never replicate the full information equilibrium and there are substantial differences in impulse responses to aggregate productivity shocks these results are robust to the introduction of a noisy public signal and aggregate financial markets we argue that the principle of market consistent information should be applied to any model with incomplete markets

effect of inventory announcements on crude oil price volatility abstract this paper examines the behavior of crude oil futures price volatility and investigates how the eia weekly crude oil inventory reports announcements especially information shocks impact crude oil price movement and volatility this study focuses on inventory information shocks using a new measure rather than on inventory changes themselves the empirical results reveal that inventory information shocks rather than actual inventory changes negatively affect crude oil returns on the day the eia releases the inventory information although inventory shocks have no effect on daily conditional variance which mainly follows a garch 1 1 process to test the robustness of our model we re estimate the models for three subsamples according to all results we find that the effect of inventory shocks is weakened in rapid growth periods and disappears in steep fall markets

humps and bumps in lifetime consumption in this article we argue that the life cycle model that allows demographics to affect household preferences and relaxes the assumption of certainty equivalence can generate hump shaped consumption profiles over age that are very similar to those observed in household level data sources and in particular match the differences in shape across different education groups liquidity constraints or myopia are not required to explain the empirical features of observed life cycle patterns

asymmetric impacts of fundamentals on the natural gas futures volatility an augmented garch approach we investigated the determinants of daily volatility for natural gas nearby month futures traded on the nymex within a garch framework augmented with market fundamentals consistent with the previous literature we found that volatility is much higher on the natural gas and crude oil storage report announcement days on mondays and during winters we also confirmed that high volatility is associated with divergence of storage levels and temperatures from seasonal norms the asymmetric impact of storage levels on volatility across different seasons is empirically investigated and documented the mainstream finding in the literature that lower storage levels result in higher volatility is valid only during winter at other times it is actually higher storage levels causing higher volatility also time to maturity effect is present only in winters additionally weather shocks have asymmetric impact on volatility depending on the sign of the shock finally we found that augmentation with market fundamentals improves the out of sample forecast accuracy of standard garch models

consumption inequality and income uncertainty this paper places the debate over using consumption or income in studies of inequality growth in a formal intertemporal setting it highlights the importance of permanent and transitory income uncertainty in the evaluation of growth in consumption inequality we derive conditions under which the growth of variances and covariances of income and consumption can be used to separately identify the growth in the variance of permanent and transitory income shocks household data from britain for the period 1968 1992 are used to show a strong growth in transitory inequality toward the end of this period while younger cohorts are shown to face significantly higher levels of permanent inequality

consumption over the life cycle facts from consumer expenditure survey data this paper uses consumer expenditure survey data and a seminonparametric statistical model to estimate life cycle profiles of consumption controlling for demographics cohort and time effects we construct age profiles for total and nondurable consumption as well as expenditure patterns for consumer durables special emphasis is placed on the comparison of different approaches to control for changes in demo graphics over the life cycle we find significant humps over the life cycle for total nondurable and durable expenditures changes in household size account for roughly half of these humps bootstrap simulations suggest that our empirical estimates are tight in that standard errors are small

the empirical relationship between energy futures prices and exchange rates abstract this paper investigates the interaction between energy futures prices and exchange rates results are presented to show that futures prices for crude oil heating oil and unleaded gasoline are co integrated with a trade weighted index of exchange rates this is important because it means that there exists a long run equilibrium relationship between these four variables granger causality results for both the long and short run are presented evidence is also presented that suggests exchange rates transmit exogenous shocks to energy futures prices

public information arrival and volatility of intraday stock returns abstract this study employs firm specific announcements as a proxy for information flows and investigates the information volatility relation using high frequency data from the australian stock exchange our analysis reveals a positive and significant impact of the arrival rate of the selected news variable on the conditional variance of stock returns even after controlling for the potential effects of trading volume and high opening volatility furthermore the inclusion of the news variable in the conditional variance equation of the generalized autoregressive conditional heteroscedastic model also reduces volatility persistence especially with intraday data combined with the evidence that news arrivals display a very strong pattern of autocorrelation our results are consistent with the mixture of distribution hypothesis which attributes conditional heteroscedasticity of stock returns to time dependence in the news arrival process

a theory of commodity price fluctuations this paper studies the price fluctuations of storable commodities that are traded in open markets and are subject to random shocks to demand or more particularly to supply it relaxes the common assumption that the shocks are identically and independently distributed in favor of temporally dependent and periodic disturbances the existence of a unique stationary rational expectations equilibrium is demonstrated for each of the models analyzed and testable implications of the models are derived an illustrative empirical investigation is then undertaken for the model with periodic disturbances using monthly time series observations for seven commodities over the period 1960 93

individual income incomplete information and aggregate consumption individual income is much more variable than aggregate per capita income i argue that aggregate information is therefore not very important for individual consumption decisions and study models of life cycle consumption in which individuals react optimally to their own income process but have incomplete or no information on economy wide variables since individual income is less persistent than aggregate income consumers will react too little to aggregate income variation aggregate consumption will be excessively smooth since aggregate information is slowly incorporated into consumption aggregate consumption will be autocorrelated and correlated with lagged income on the other hand the model has the same prediction for micro data as the standard permanent income model the second part of the paper provides empirical evidence on individual and aggregate income processes different models for individual income are fit to quarterly data from the survey of income and program participation making various adjustments for measurement error calibrating the consumption model using the estimated parameters for the income process yields predictions which qualitatively correspond to the empirical findings for aggregate consumption but do not match them well in magnitude

bounded rationality lifecycle consumption and social security abstract this paper explores an overlapping generations model of bounded rationality in which consumers only foresee the future over a subset of their life span we focus in particular on whether the model can in general equilibrium produce a hump shaped lifecycle consumption profile with a peak that matches data for the average u s consumer for a simple four period model we show that an increasing income profile along with exogenously imposed retirement are sufficient to induce a hump with no other mechanism that can account for a hump besides bounded rationality the model best fits the salient features of consumption data with a planning horizon of 20 years which is well supported by the behavioral evidence found in surveys on retirement planning finally we show that the age of the consumption peak is robust to the introduction of social security mortality risk and another species of bounded rationality quasihyperbolic discounting moreover social security can be welfare improving with a short planning horizon we can calibrate the model to jointly explain the timing of the consumption hump and the optimality of the current social security system with quasihyperbolic discounting instead we can calibrate the model so the current social security system is optimal but we cannot also account for the timing of the consumption hump if we add quasihyperbolic discounting in addition to a short planning horizon the present bias has a negligible effect in equilibrium

income risk macroeconomic and demographic change and economic inequality in japan abstract using an olg model with heterogeneous households we investigate the relationship among income risk macroeconomic and demographic changes and economic inequality between 1980 and 2000 in japan by decomposing the primary factors in earnings and consumption inequality into macroeconomic variables and the demographic variable we find that our model replicates the evolution of economic inequality in japan by performing counterfactual simulations we demonstrate that two factors changes in time varying macroeconomic factors and the unexpected decline in the total factor productivity growth rate played important roles in the increase in earnings and consumption inequality in the 1990s

oil and energy price volatility it is commonly believed that since the 1973 oil crisis oil and energy prices have been more volatile than other commodity prices this study examines monthly producer prices for thousands of products over the period january 1945 through august 2005 the results show that crude oil refined petroleum and natural gas prices are more volatile than prices for about 95 of products sold by domestic producers relative to crude commodities however crude oil prices are currently more volatile than about 65 of other products and oil price volatility first exceeded the median for crude commodities following the 1986 drop in oil prices

a schumpeterian model of top income inequality top income inequality rose sharply in the united states over the last 40 years but increased only slightly in france and japan why we explore a model in which heterogeneous entrepreneurs broadly

consumption retirement and social security evaluating the efficiency of reform that encourages longer careers abstract this paper proposes and analyzes a social security reform in which individuals no longer face the oasi payroll tax after say age 54 or a career of 34 years and their subsequent earnings have no bearing on their benefits we first estimate parameters of a life cycle model our specification includes non separable preferences and possible disability it predicts a consumption expenditure change at retirement we use the magnitude of the expenditure change together with households retirement age decisions to identify key structural parameters the estimated magnitude of the change in consumption expenditure depends importantly on the treatment of consumption by adult children of the household simulations indicate that the reform could increase retirement ages one year or more equivalent variations could average more than 4000 per household and income tax revenues per household could increase by more than 14 000

competitive storage and commodity price dynamics by buying cheap and selling dear risk neutral commodity speculators can smooth commodity prices and induce serial dependence in price even when none would exist under a simple process of supply and demand commodity prices are variable and strongly positively correlated from one year to the next the variability is often explained by supply factors and the autocorrelation by the activities of speculators we show that this explanation is not consistent with the evidence speculation can substantially increase autocorrelation for prices that are weakly autocorrelated in its absence but not to the high levels that are observed in the data

earnings dynamics and inequality among canadian men 1976 1992 evidence from longitudinal income tax records using an extraordinary database drawn from longitudinal income tax records we decompose canada s growth in earnings inequality into its persistent and transitory components we find that the growth in earnings inequality reflects both an increase in long run inequality and an increase in earnings instability the canadian data strongly reject several restrictions commonly imposed in the u s literature and they also suggest that imposing these evidently false restrictions may lead to distorted inferences about earnings dynamics and inequality trends

consumption and risk sharing over the life cycle a striking feature of u s data on income and consumption is that inequality increases with age this paper asks if individual specific earnings risk can provide a coherent explanation we find that it can we construct an overlapping generations general equilibrium model in which households face uninsurable earnings shocks over the course of their lifetimes earnings inequality is exogenous and is calibrated to match data from the u s panel study on income dynamics consumption inequality is endogenous and matches well data from the u s consumer expenditure survey the total risk households face is decomposed into that realized before entering the labor market and that realized throughout the working years in welfare terms the latter is found to be more important than the former

crude oil price analysis and forecasting a perspective of new triangle abstract in this paper the new structural characteristics and core influencing factors of the crude oil prices are summarized based on previous representative research results firstly a newly dynamic bayesian structural time series model dbsts is developed to investigate the oil prices in particular google trend is introduced as an indicator to reflect the impact of search data on the oil price secondly the spike and slab method is employed to select core influence factors finally the bayesian model average bma is utilized to predict the oil price experimental results confirm that the supply and demand of global crude oil and the financial market are still the main factors affecting the oil price furthermore google trend can reflect the changes in the crude oil price to a certain extent moreover the impact of shale oil production on the oil price is gradually increasing yet remains relatively small in addition the dbsts model can identify turning points in historical data such as the 2008 financial crisis finally the findings suggest the dbsts model has good predictive capabilities in short term prediction making it suitable for analyzing the crude oil prices

the revenge of homo economicus contested exchange and the revival of political economy recent developments in microeconomic theory have shown that the self interested behavior underlying neoclassical theory is artificially truncated it depicts a charmingly victorian but utopian world in which conflicts abound but a handshake is a handshake but a handshake is not always a handshake studies of principal agent analysis the economics of information radical political economy mechanism design and transactions cost economics have all focused on the difficulties involved in policing and enforcing the actual process of market exchange abandoning the victorian world of neoclassical theory will redirect economists to an older conception of their profession what once was called political economy by taking optimizing more seriously post walrasian economics has inspired a revolution in economic thought fostering both new theoretical departures and alternative conceptions of the capitalist economy we will offer our own interpretation of this literature focusing on the widely recognized fact that the terms arising from exchange are not generally enforceable at zero cost to the exchanging parties where some aspect of the good or service supplied is both valuable to the buyer and costly to provide the absence of third party enforcement of claims gives rise to endogenous enforcement strategies we refer to this relationship as a contested exchange because unlike the transactions of walrasian economics the benefit the parties derive from the transaction depends on their own capacities to enforce competing claims

wage risk and the value of job mobility in early employment careers this paper shows that job mobility is a valuable channel that employed workers use to mitigate bad labor market shocks i estimate a model of wage dynamics jointly with a dynamic model of employmen

hedgers funds and small speculators in the energy futures markets an analysis of the cftc s commitments of traders reports the commodity futures trading commission cftc s commitments of traders cot data are examined for crude oil unleaded gasoline heating oil and natural gas futures contracts the collection procedures for the cot data are first examined followed by granger causality tests to determine if relationships between trader positions and market prices exist a positive correlation between returns and positions held by noncommercial traders and a negative correlation between commercial positions and market returns are found furthermore positive returns result in an increase in noncommercial net positions in the following week whereas the net long positions held by commercial hedgers decline following price increases however traders net positions do not lead market returns in general

income variance dynamics and heterogeneity recent theoretical work has shown the importance of measuring microeconomic uncertainty for models of both general and partial equilibrium under imperfect insurance in this paper the assumption of i i d income innovations used in previous empirical studies is removed and the focus of the analysis is placed on models for the conditional variance of income shocks which is related to the measure of risk emphasized by the theory we first discriminate amongst various models of earnings determination that separate income shocks into idiosyncratic transitory and permanent components we allow for education and time specific differences in the stochastic process for earnings and for measurement error the conditional variance of the income shocks is modelled as a parsimonious arch process with both observable and unobserved heterogeneity the empirical analysis is conducted on data drawn from the 1967 1992 panel study of income dynamics we find strong evidence of sizeable arch effects as well as evidence of unobserved heterogeneity in the variances

emerging market business cycles learning about the trend abstract emerging market business cycles feature a higher variability of consumption relative to output and a strongly countercyclical trade balance an equilibrium business cycle model in which agents learn to distinguish between the permanent and transitory components of total factor productivity shocks using the kalman filter accounts for these features calibrated to mexico the model accounts for the behavior of consumption and the trade balance for a wide range of variability and persistence of permanent shocks relative to transitory shocks estimation for mexico and canada suggests more severe informational frictions in emerging markets than in developed economies

inventory shocks and the oil ethanol grain price nexus we analyze the effects of oil and grain inventory data releases on oil ethanol corn and soy futures prices oil and grain inventory shocks are identified as the percent difference between actual inventory levels and median predictions from a survey of forecasters ethanol futures prices alone are found to respond to both oil and grain inventory shocks other energy futures prices respond only to oil inventory shocks while agricultural commodity futures prices respond only to grain inventory shocks