consumption and debt response to unanticipated income shocks evidence from a natural experiment in singapore abstract this paper uses a unique panel dataset of consumer financial transactions to study how consumers respond to an exogenous unanticipated income shock consumption rose significantly after th

model complexity and out of sample performance evidence from s p 500 index returns abstract we apply a range of out of sample specification tests to more than forty competing stochastic volatility models to address how model complexity affects out of sample performance using daily s p 500 index returns model confidence set estimations provide strong evidence that the most important model feature is the non affinity of the variance process despite testing alternative specifications during the turbulent market regime of the global financial crisis of 2008 we find no evidence that either finite or infinite activity jump models or other previously proposed model extensions improve the out of sample performance further applications to value at risk demonstrate the economic significance of our results furthermore the out of sample results suggest that standard jump diffusion models are misspecified

measuring movement of incomes we consider a small set of elementary properties for income movement measures and show that there is essentially only one measure that satisfies all of these properties the per capita aggregate change in log incomes we demonstrate next that this movement mobility measure has a number of appealing descriptive and normative properties and provide a formal generalization of our basic characterization theorem drawing from the related literature on poverty measurement finally we present here an empirical application in which we show by using our new measure that there has been a broad based increase in income movement in the united states between the 1970s and 1980s

the pricing of options on assets with stochastic volatilities one option pricing problem that has hitherto been unsolved is the pricing of a european call on an asset that has a stochastic volatility this paper examines this problem the option price is determined in series form for the case in which the stochastic volatility is independent of the stock price numerical solutions are also produced for the case in which the volatility is correlated with the stock price it is found that the black scholes price frequently overprices options and that the degree of overpricing increases with the time to maturity one option pricing problem that has hitherto remained unsolved is the pricing of a european call on a stock that has a stochastic volatility from the work of merton 12 garman 6 and cox ingersoll and ross 3 the differential equation that the option must satisfy is known the solution of this differential equation is independent of risk preferences if a the volatility is a traded asset or b the volatility is uncorrelated with aggregate consumption if either of these conditions holds the risk neutral valuation arguments of cox and ross 4 can be used in a straightfoward way this paper produces a solution in series form for the situation in which the stock price is instantaneously uncorrelated with the volatility we do not assume that the volatility is a traded asset also a constant correlation between the instantaneous rate of change of the volatility and the rate of change of aggregate consumption can be accommodated the option price is lower than the blackscholes b s 1 price when the option is close to being at the money and higher when it is deep in or deep out of the money the exercise prices for which overpricing by b s takes place are within about ten percent of the security price this is the range of exercise prices over which most option trading takes place so we may in general expect the b s price to overprice options this effect is exaggerated as the time to maturity increases one of the most surprising implications of this is that if the b s equation is used to determine the implied volatility of a near the money option the longer the time to maturity the lower the implied volatility numerical solutions for the case in which the volatility is correlated with the stock price are also examined the stochastic volatility problem has been examined by merton 13 geske 7 johnson 10 johnson and shanno 11 eisenberg 5 wiggins 16 and

intragenerational income mobility in latin america economic mobility has not been widely studied in developing countries until very recently owing to the lack of suitable data studying mobility requires longitudinal data tracking economic units that is individuals households or firms over time collecting this type of data is expensive and historically few latin american countries carried it out now however such data sets are available for a number of latin american and caribbean countries table a 1 in the appendix provides a list of available panel data sets that can be used for income mobility studies for these countries in this paper we discuss how the knowledge gleaned from mobility studies differs from comparable cross sectional analysis the structure of the paper is as follows the next section discusses what mobility is how it can be measured and how it differs from inequality the subsequent section reviews previous mobility studies in latin american countries the paper then summarizes the contributions of our own recent work and the final section discusses what lies ahead in mobility research for latin american economies

the rising instability of u s earnings the inequality of earnings and of family incomes in the united states has increased since the late 1970s autor katz and kearney 2008 this increase in cross sectional inequality has largely been interpreted as a growing disparity in permanent incomes between those with high incomes and those with low incomes however growing inequality could equally well be a result of growing income instability if workers experience increasingly large fluctuations in earnings from year to year this would also increase the measured inequality of earnings from year to year for example if everyone maintained the same level of permanent income but some experienced a 500 increase in their income in the first year and then a reversal to 500 below their permanent incomes in the following year while an equal number experienced the opposite a drop in income followed by an offsetting rise measured inequality would rise though nothing would have happened to the dispersion of permanent incomes while this example is an extreme one it points to the fact that the large rise in earnings inequality between the 1970s and the 1990s could reflect either a rise in disparity of permanent incomes a rise in earnings instability or some portion of both without longitudinal data it is impossible to distinguish between these two very different explanations for increased cross sectional measures of inequality in this paper we provide longitudinal measures that separate changes in income inequality into changes that permanently change income to new levels and those that only reflect transitory change we refer to the latter as changes in income instability and discuss how the instability of individual earnings and family income in the united states has evolved over the last quarter century

scale and skill in active management abstract we empirically analyze the nature of returns to scale in active mutual fund management we find strong evidence of decreasing returns at the industry level as the size of the active mutual fund industry increases a fund s ability to outperform passive benchmarks declines at the fund level all methods considered indicate decreasing returns though estimates that avoid econometric biases are insignificant we also find that the active management industry has become more skilled over time this upward trend in skill coincides with industry growth which precludes the skill improvement from boosting fund performance finally we find that performance deteriorates over a typical fund s lifetime this result can also be explained by industry level decreasing returns to scale

assessing individual income growth we develop methods for describing distributions of income growth across individuals and for comparing changes in growth distributions over time the methods include graphical devices income growth profiles and dominance conditions and also summary indices together with associated methods of estimation and inference taking an explicitly longitudinal perspective our approach illuminates clearly who are the gainers and the losers and also provides distributionally sensitive assessments ones that allow the income growth for different individuals to be weighted differently our empirical application shows that the pattern of income growth in britain over the period 1992 1996 was less pro poor than that for 1998 2002 and not significantly different from the pattern for 2001 2005

out of sample density forecasts with affine jump diffusion models abstract we conduct out of sample density forecast evaluations of the affine jump diffusion models for the s p 500 stock index and its options contracts we also examine the time series consistency between the model implied spot volatilities using options returns and only returns in particular we focus on the role of the time varying jump risk premia particle filters are used to estimate the model implied spot volatilities we also propose the beta transformation approach for recursive parameter updating our empirical analysis shows that the inconsistencies between options returns and only returns are resolved by the introduction of the time varying jump risk premia for density forecasts the time varying jump risk premia models dominate the other models in terms of likelihood criteria we also find that for medium term horizons the beta transformation can weaken the systematic effect of misspecified ajd models using options returns

household balance sheet channels of monetary policy a back of the envelope calculation for the euro area abstract this paper formulates a back of the envelope approach to study the effects of monetary policy on household consumption expenditures we analyze several transmission mechanisms operating through direct partial equilibrium channels intertemporal substitution and net interest rate exposure and indirect general equilibrium channels net nominal exposure as well as wealth collateral and labor income channels the strength of these forces varies across households depending on their marginal propensities to consume their balance sheet composition the sensitivity of their own earnings to fluctuations in aggregate labor income and the responsiveness of aggregate earnings asset prices and inflation to monetary policy shocks we quantify all these channels in the euro area by combining micro data from the hfcs and the eu lfs with structural vars estimated on aggregate time series we find that the indirect labor income channel and the housing wealth effect are strong drivers of the aggregate consumption response to monetary policy and explain the cross country heterogeneity in these responses

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

reordering inequality and divergent growth processes of neighbourhood change in dutch cities neighbourhood socioeconomic change is often related to structural processes that transform urban income compositions in the netherlands restructuring of the welfare state and the housing market a

consumer spending and the economic stimulus payments of 2008 abstract we measure the change in household spending caused by receipt of the economic stimulus payments of 2008 using questions added to the consumer expenditure survey and variation from the ran

an index of inequality with applications to horizontal equity and social mobility horizontal equity and social mobility are discussed in terms of a non utilitarian social welfare function which takes account of the process by which an ex ante distribution is mapped into an ex post distribution by the tax system for example an index of inequality is proposed which decomposes into two components corresponding to vertical and horizontal equity respectively a functional form for the social welfare function is derived for the purposes of empirical work and an application to data for 5895 uk households is presented the paper contains a theoretical application of the index to a model of optimal taxation it is conventional to assess the merits of alternative public policies in terms of a trade off between equity and efficiency in practice however a change in say the tax system involves three effects first it may have incentive or disincentive effects leading to efficiency gains or losses secondly it may alter the distribution of welfare levels thirdly it may alter the ranking of individuals or households within the distribution these three effects correspond to efficiency vertical equity and we shall argue certain aspects of horizontal equity respectively and any assessment of a tax change must take into account all three the principal assumption of this paper is that government is concerned about the trade off between these three effects a strict utilitarian is concerned only with the consequences of an action and in the evaluation of a particular reform a utilitarian measure of social welfare is defined over the vector of ex post utilities no account is taken of the process by which the vector of ex ante utilities is mapped into the ex post vector and no ethical status is awarded to the ex ante distribution one does not have to adopt an entitlement theory of justice to believe that the utilitarian approach may ignore some relevant considerations such as the fairness of the redistributive process a striking example of this arises in the model used by mirrlees 11 to examine optimal income taxation in that model individuals have identical preferences defined over consumption and leisure and differ only in respect of their potential wage rates or ability levels clearly in the absence of taxation individual utility is an increasing function of ability suppose the government uses redistributive lump sum taxes to achieve the first best optimum then as mirrlees 11 12 shows the first best optimum for a utilitarian social welfare

normative indices for measuring social mobility this paper introduces relative and absolute indices of social mobility to each index there corresponds a different social welfare function when the symmetric mean of order 1 social welfare function is employed the relative index becomes the king 1983 index of social mobility

out of sample performance of discrete time spot interest rate models we provide a comprehensive analysis of the out of sample performance of a wide variety of spot rate models in forecasting the probability density of future interest rates although the most parsimonious models perform best in forecasting the conditional mean of many financial time series we find that the spot rate models that incorporate conditional heteroscedasticity and excess kurtosis or heavy tails have better density forecasts generalized autoregressive conditional heteroscedasticity significantly improves the modeling of the conditional variance and kurtosis whereas regime switching and jumps improve the modeling of the marginal density of interest rates our analysis shows that the sophisticated spot rate models in the existing literature are important for applications involving density forecasts of interest rates

household expenditure and the income tax rebates of 2001 using questions expressly added to the consumer expenditure survey we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis we exploit the unique randomized timing of rebate receipt across households households spent 20 to 40 percent of their rebates on nondurable goods during the three month period in which their rebates arrived and roughly two thirds of their rebates cumulatively during this period and the subsequent three month period the implied effects on aggregate consumption demand are substantial consistent with liquidity constraints responses are larger for households with low liquid wealth or low income

income mobility profiles abstract an income mobility profile is a graphical tool to portray income mobility and identify the association between individual movements and initial status which despite its importance when assessing the social relevance of mobility is often discounted by aggregate mobility indices

the stock market housing and consumer spending a survey of the evidence on wealth effects abstract this paper examines the time series and micro econometric evidence on the relationship between stock and house prices and consumer spending the time series studies distinguish between short run and long run links between consumption income and wealth they allow us to identify which variables adjust to restore the long run equilibrium in the case of a shock and to determine the time taken by the adjustment process the micro econometric literature improves our understanding of the link between wealth and expenditure and distinguishes among the alternative hypotheses of direct wealth effect common causality and collateral channel that have been proposed to explain this relationship the relationship between wealth and consumer spending appears to be strong but there is some disagreement as to its size and nature furthermore there appear to be some important differences across countries which should be allowed for by policy makers when appraising the policy implications of a change in asset prices

how much income mobility is there in britain using the first four waves of the british household panel survey 1991 4 and a variety of methods we show that there is much mobility in household net income from one year to the next in britain however most income changes from one year to the next are not very large and when incomes are longitudinally averaged so that transitory variations are smoothed out substantial permanent income differences are revealed there is some evidence of greater mobility for those in the tails of the income distribution relative to the middle and for elderly persons compared to non elderly persons

how much of observed economic mobility is measurement error iv methods to reduce measurement error bias with an application to vietnam research on economic growth and inequality inevitably raise issues concerning economic mobility because the relationship between long run inequality and short run inequality is mediated by income mobility for a given level of short run inequality greater mobility implies lower long run inequality yet empirical measures of both inequality and mobility are biased upward due to measurement error in income and expenditure data collected from household surveys this paper presents a straightforward method to remove this bias using instrumental variable estimates the method is applied to panel data from vietnam the results imply that at least 15 and perhaps as much as 42 of measured mobility is upward bias due to measurement error the results also suggest that measurement error accounts for at least 12 of measured inequality

the meaning and measurement of income mobility abstract income mobility may be seen as arising from two sources i the transfer of income among individuals with total income held constant and ii a change in the total amount of income available in this paper we propose several sensible properties defining the concept of income mobility and show that an easily applicable measure of mobility is uniquely implied by these properties we also show that the resulting measure is additively decomposable into the two sources listed above namely mobility due to the transfer of income within a given structure and mobility due to economic growth or contraction finally these results are compared and contrasted with other mobility concepts and measures in the literature journal of economic literature classification numbers d31 d63

voting for redistribution under desert sensitive altruism we endow individuals that differ in skill levels and tastes for working with altruistic preferences for redistribution in a voting model where a unidimensional redistributive parameter is chosen by majority voting in a direct democracy when altruistic preferences are desert sensitive i e when there is a reluctance to redistribute from the hard working to the lazy we show that lower levels of redistribution emerge in political equilibrium we provide empirical evidence based on the issp 1992 dataset that preferences for redistribution are not purely selfish and that desert sensitive motivations play a significant role we estimate that preferences for redistribution are significantly more desert sensitive in the us than in europe we believe that differences in desert sensitive preferences for redistribution help explain the different social contracts that prevail in both continents

optimal filtering of jump diffusions extracting latent states from asset prices this paper provides an optimal filtering methodology in discretely observed continuoustime jump diffusion models although the filtering problem has received little attention it is useful for estimating latent states forecasting volatility and returns computing model diagnostics such as likelihood ratios and parameter estimation our approach combines time discretization schemes with monte carlo methods it is quite general applying in nonlinear and multivariate jump diffusion models and models with nonanalytic observation equations we provide a detailed analysis of the filter s performance and analyze four applications disentangling jumps from stochastic volatility forecasting volatility comparing models via likelihood ratios and filtering using option prices and returns jel c11 c13 c15 c51 c52 g11 g12 g17 this paper develops a filtering approach for learning about unobserved shocks and states from discretely observed prices generated by continuous time jumpdiffusion models the optimal filtering problem which has received little attention is the natural companion to the parameter estimation problem as filters allow researchers to analyze and use their models for practical applications 1 despite its usefulness there is currently no general method for solving the filtering problem in continuous time models

on the origins of risk taking in financial markets risk taking in financial markets is highly correlated between parents and their children however little is known about the extent to which these relationships are genetic or determined by environmental factors we use data on stock market participation of swedish adoptees and relate this to the investment behavior of both their biological and adoptive parents we find that stock market participation of parents increases that of children by about 34 and that both pre birth and post birth factors are important however once we condition on having positive financial wealth we find that nurture has a much stronger influence on risk taking by children and the evidence of a relationship between stock holding of biological parents and their adoptive children becomes weaker we find similar results when we study the share of financial wealth that is invested in stocks this suggests that a substantial proportion of the transmission of risk behavior from parents to children is environmentally determined

inequality income growth and mobility the basic facts during the 1950s and 1960s mean wages in the united states grew rapidly and the dispersion around this growing mean changed very litde starting in the 1970s and continuing into the 1980s and 1990s these patterns were reversed mean wages grew slowly and inequality increased rapidly these changes in labor markets were reflected in changes in the distribution of family income the mean of the distribution of family income did increase after 1973 in spite of the near constancy of mean real wages as family members increased the number of hours they worked however the increase in inequality of wages was mirrored by an increase in the dispersion of family income a large descriptive literature has documented the rise in inequality while a smaller behavioral literature has sought to delineate the causes of this rise these changes in the distribution of family income a fected rates of poverty directly during the 1950s and 1960s temporary increases in poverty during recessions were more than offset by declines in poverty during economic expansions as long as the poor gained along with everyone else fi om the secular growth in the mean one could be confident that poverty rates would ratchet down this is exactly what happened as poverty rates fell from 22 4 percent in 1959 to 11 1 percent in 1973

debt and the response to household income shocks validation and application of linked financial account data the increasing availability of data derived from linked consumer financial accounts has the potential to dramatically expand the potential for research examining the most comprehensive existing se

the value of registry data for consumption analysis an application to health shocks abstract this paper measures consumption expenditures using registry data on income and asset holdings in sweden we show how a registry based measure complements traditional survey measures of consumption and can alleviate some critical limitations we describe the construction of our measure which builds on prior work and exploits the identity coming from the household budget constraint between consumption expenditures and income net of savings we demonstrate the value of the registry based measure to study consumption responses to shocks also relative to surveyed consumption in our application to health shocks we find that swedish household experience permanent earning drops but generous social transfers provide substantial consumption smoothing we document important heterogeneity in consumption responses and the limited role for private means

excess sensitivity of high income consumers using new transaction data i find considerable deviations from consumption smoothing in response to large regular predetermined and salient payments from the alaska permanent fund on average the marginal propensity to consume mpc is 25 for nondurables and services within one quarter of the payments the mpc is heterogeneous monotonically increasing with income and the average is largely driven by high income households with substantial amounts of liquid assets who have mpcs above 50 the account level data and the properties of the payments rule out most previous explanations of excess sensitivity including buffer stock models and rational inattention how big are these mistakes using a sufficient statistics approach i show that the welfare loss from excess sensitivity depends on the mpc and the relative payment size as a fraction of income since the lump sum payments do not depend on income the two statistics are negatively correlated such that the welfare losses are similar across households and small less than 0 1 of wealth despite the large mpcs

measures of distributional change an axiomatic approach in recent years a number of interesting papers have appeared in the general field of the analysis of changes in a frequency distribution the most common applications of such analysis are in the areas of income and wealth re distribution and the contributions have usually focussed on a particular specialised issue such as mobility of individuals within a structure or of horizontal inequity as opposed to vertical inequality implicit in the comparison of two distributions a number of approaches to each of these problems have been suggested and indeed several specific practical indices of mobility or inequity have been proposed 1 whilst some of these can be shown to have very useful features in their application it is probably fair to say that most derive from an ad hoc approach to the particular aspect of the problem on which the author had focussed it is interesting to note that comparatively few papers attempt to exploit the similarities involved in each of these issues all this contrasts rather sharply with the state of play in an obviously closely related game that of the measurement of inequality much of the essential foundation of the problem of measuring inequality as we presently understand it seems to be more or less sorted out in a systematic fashion roughly speaking what may be done is as follows given

intergenerational exchange mobility and economic welfare the concepts of exchange and structural mobility are introduced and their relationship with the notion of equality of opportunity discussed it is then shown that exchange mobility can have an impact on social welfare when the utility of any one generation is dependent on the consumption levels of overlapping generations whether such consumption interrelationships imply a preference for mobility or the reverse depends on whether the marginal utility of current consumption is raised or lowered by an increase in the consumption level of the associated generation the rest of this paper examines these two cases in the context of a simple two class family model the analysis is concerned with the description of the optimal intergenerational behaviour within this framework in order to be able to say anything substantial however it is necessary to impose some restrictions on the structure of the utility function one restriction which has some appeal and which yields plausible patterns of optimal policy is that intergenerational links through the utility function be not too strong in a sense that is made specific in the paper imposing this condition one can show how intra generational equity is affected both by intergenerational considerations and by the inherited past where intragenerational transfers involve efficiency losses a simple tax model is examined the circumstances under which starting with no taxes the tax rates converge are worked out in both the cases where the utility function has a pro as well as an anti mobility bias finally a specific utility function is taken in which the fathers utility depends not only on his own consumption but also on the average consumption of his son and himself in this case the utility function has a pro mobility bias and one can evaluate the response of the long run tax rate to parameters that measure mobility and equality using a similation model one can also assess the speed of convergence and the sensitivity of the tax rates to the parameters

the behavioral life cycle hypothesis self control mental accounting and framing are incorporated in a behavioral enrichment of the life cycle theory of saving called the behavioral life cycle blc hypothesis the key assumption of the blc theory is that households treat components of their wealth as nonfungible even in the absence of credit rationing specifically wealth is assumed to be divided into three mental accounts current income current assets and future income the temptation to spend is assumed to be greatest for current income and least for future income considerable empirical support for the blc theory is presented primarily drawn from published econometric studies

decomposing the wealth effect on consumption we decompose the wealth effect on consumption into two components first we distinguish between exogenous and endogenous wealth changes second we distinguish between anticipated and unanticipated exogenous changes we estimate the impact of exogenous components using data from the 2008 2010 panel of the italian survey of household income and wealth the wealth effect is about 3 cents per unexpected euro increase in wealth and driven by house price changes the consumption response to anticipated changes in wealth is of similar magnitude and also driven by housing we show that these findings are consistent with binding borrowing constraints

what can we learn about household consumption expenditure from data on income and assets abstract a major difficulty faced by researchers who want to study the consumption and savings behavior of households is the lack of reliable panel data on household expenditures one possibility is to use surveys that follow the same households over time but such data are rare and they typically have small sample sizes and face significant measurement issues an alternative approach is to use the accounting identity that total household spending is equal to income plus capital gains minus the change in wealth over the period the goal of this paper is to examine the advantages and difficulties of using this accounting identity to construct a population panel data with information on household expenditure to derive such measures of consumption expenditure we combine several data sources from norway over the period 1994 2014 this allows us to link tax records on income and wealth to other administrative data with information on financial and real estate transactions using this data we derive household expenditure from the accounting identity before assessing the sensitivity of this measure of consumption expenditure to the assumptions made and the data used we then compare our measures of household expenditure to those reported in expenditure surveys and to the aggregates from national accounts we also illustrate the research opportunities arising from the derived measures of consumption expenditure through two applications the first is an examination of how relative wage movements among birth cohorts and education groups affected the distribution of household expenditure while the second is a study of the transmission of income shocks to household consumption

evaluating density forecasts with applications to financial risk management density forecasting is increasingly more important and commonplace for example in financial risk management yet little attention has been given to the evaluation of density forecasts the authors develop a simple and operational framework for density forecast evaluation they illustrate the framework with a detailed application to density forecasting of asset returns in environments with time varying volatility finally the authors discuss several extensions copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

housing wealth and consumption evidence from geographically linked microdata rising home values also raise the cost of living offsetting their impact on consumption however additional home equity collateral can loosen borrowing constraints increasing spending for households that value their current endowment of housing highly i use geographically linked microdata to exploit regional heterogeneity in housing markets and identify the causal effect of house price fluctuations on consumer spending a 1 increase in home values leads to a 0 047 increase in spending for homeowners but a negligible response for renters results reflect large responses among credit constrained households suggesting looser borrowing constraints are a primary driver of the mpc out of housing wealth

simulated likelihood estimation of diffusions with an application to exchange rate dynamics in incomplete markets abstract we present an econometric method for estimating the parameters of a diffusion model from discretely sampled data the estimator is transparent adaptive and inherits the asymptotic properties of the generally unattainable maximum likelihood estimator we use this method to estimate a new continuous time model of the joint dynamics of interest rates in two countries and the exchange rate between the two currencies the model allows financial markets to be incomplete and specifies the degree of incompleteness as a stochastic process our empirical results offer several new insights into the dynamics of exchange rates

the effect of house prices on household borrowing a new approach we investigate the effect of house prices on household borrowing using administrative mortgage data from the united kingdom and a new empirical approach the data contain household level information on house prices and borrowing in a panel of homeowners who refinance at regular and quasi exogenous intervals the data and setting allow us to develop an empirical approach that exploits house price variation coming from the idiosyncratic and exogenous timing of refinance events around the great recession we present two main results first there is a clear and robust effect of house prices on borrowing second the effect of house prices on borrowing can be explained largely by collateral effects we study the collateral channel through a multivariate and nonparametric heterogeneity analysis of proxies for collateral and wealth effects

the comparison of multi dimensioned distributions of economic status the literature on inequality measurement has been largely concerned with single dimensioned indicators this paper explores some of the issues which arise when there are several dimensions to inequality and these are not readily reduced to a single index concentrating particularly on the two dimensioned case we make use of results on multi variate stochastic dominance in portfolio theory extending these and applying them to the measurement of inequality the use of the dominance conditions is illustrated by an application to the international distribution of income and life expectancy

an axiomatic characterization of the watts poverty index abstract although the first distribution sensitive decomposable poverty index the watts index has long been neglected by the profession even when it was searching for a decomposable index this neglect is due partly to the lack of an axiomatic characterization for the watts index this paper adopts an axiomatic approach and complements the watts index with such a characterization under a set of reasonable axioms the watts index is the unique index if a poverty index is perceived as the absolute amount of social welfare loss due to poverty the watts index is relatively easy to apply it also satisfies all basic axioms for a good poverty index

stochastic dominance in mobility analysis abstract this paper introduces a technique for mobility dominance and compares the degree of earnings mobility of men in the usa from 1970 to 1995 the highest mobility is found in the 1975 1980 or 1980 1985 periods

inequality adjusted income growth we introduce and characterize a new measure of aggregate income growth that allows us to give more weight to individuals with lower individual income growth our measure includes several important measures of directional mobility encountered in the literature the empirical application compares the measure of income growth between the usa and germany and finds that giving more weight to individuals with lower income growth reverses the ranking

international income mobility abstract we perform a novel analysis of the international mobility of per capita gnp we find general but not unambiguous support for the notion that world income mobility increased between 1972 and 1992 counterpointing the increased inequality over this period

income inequality mobility and turnover at the top in the us 1987 2010 abstract while cross sectional data show increasing income inequality in the united states it is also important to examine how incomes change over time using income tax data this paper provides new evidence on long term and intergenerational mobility and persistence at the top of the income distribution half of those aged 35 40 in the top or bottom quintile in 1987 remain there in 2007 the others have moved up or down while 30 percent of dependents aged 15 18 from bottom quintile households are themselves in the bottom quintile after 20 years most have moved up persistence is lower in the highest income groups

on the measurement of poverty official statistics in the united states and the united kingdom show a rise in poverty between the 1970 s and the 1980 s but scepticism has been expressed with regard to these findings in particular the methods employed in the measurement of poverty have been the subject of criticism this paper re examines three basic issues in measuring poverty the choice of the poverty line the index of poverty and the relation between poverty and inequality one general theme running through the paper is that there is a diversity of judgments which enter the measurement of poverty and that it is necessary to recognize these explicitly in the procedures adopted there is likely to be disagreement about the choice of poverty line affecting both its level and its structure in this situation we may only be able to make comparisons and not to measure differences and the comparisons may lead only to a partial rather than a complete ordering the first section of the paper discusses the stochastic dominance conditions which allow such comparisons illustrating their application by reference to data for the united states the choice of poverty measure has been the subject of an extensive literature and a variety of measures have been proposed in the second section of the paper a different approach is suggested considering a class of measures satisfying certain general properties and seeking conditions under which all members of the class which includes many of those proposed give the same ranking those sceptical about measures of poverty often assert that poverty and inequality are being confounded the third section of the paper distinguishes four different viewpoints and relates them to theories of justice and views of social welfare

measuring social mobility abstract the paper considers the ranking of mobility matrices in a simple markov model of social mobility the approach is the dynamic counterpart ot the static inequality ranking of income distributions by the lorenz curve the derived partial ordering is motivated by welfare considerations is shown to be equivalent to same intuitive mobility concepts and is used to screen some immobility indices the equivalence of the ranking with the permanent income lorenz ordering gives support to the claim that this approach is the natural extension of kolm s the optimal production of social justice in public economics j margolis and h guitton eds macmillan london 1969 atkinson s on the measurement of inequality j econ theory2 1970 244 263 and dasgupta sen and starrett s notes on the measurement of inequality j econ theory6 1973 180 187 approaches journal of economic literature classification numbers d31 d63 j62

three meanings of intergenerational mobility we axiomatize three different motivations for being concerned about intergenerational mobility mobility as a description of movement as an indication of equality of opportunity and as an indication of equality of life chances these three motivations are shown to be incompatible none of the existing measures is acceptable as an indicator of equality of opportunity or equality of life chances we propose two new measures of intergenerational mobility which more adequately reflect these concerns

stock market wealth and consumption this paper explores the link between changes in the aggregate value of corporate stock and changes in consumer spending it presents data on the distribution of corporate stock ownership based on the 1998 survey of consumer finances it also uses time series evidence on the comovement of stock market wealth and various categories of consumer spending to calibrate the wealth effect it concludes that in the year after a change in stock market values consumer spending is likely to rise by between one and two cents for each dollar increase in the value of corporate stock

stock market returns and consumption this paper employs swedish data on households stock holdings to investigate how consumption responds to changes in stock market returns we instrument the actual capital gains and dividend payments with past portfolio weights unrealized capital gains lead to a marginal propensity to consume mpc of 23 percent for the bottom 50 of the wealth distribution and about 3 percent for the top 30 of the wealth distribution households consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution our findings are consistent with households treating capital gains and dividends as separate sources of income