The rationality and reliability of expectations reported by British households: micro evidence from the British household panel survey

This paper assesses the accuracy of individuals' expectations of their financial circumstances, as reported in the British Household Panel Survey, as predictors of outcomes and identifies what factors influence their reliability. As the data are qualitative bivariate ordered probit models, appropriately identified, are estimated to draw out the differential effect of information on expectations and realisations. Rationality is then tested and we seek to explain deviations of realisations from expectations at a micro-economic level, possibly with reference to macroeconomic shocks. A bivariate regime-switching ordered probit model, distinguishing between states of rationality and irrationality, is then estimated to identify whether individual characteristics affect the probability of an individual using some alternative model to rationality to form their expectations. --household behaviour,expectation formation

Pension Arrangements and Retirement Choices in Europe: A Comparison of the British, Danish and German Systems. ENEPRI Research Reports No. 5, 1 February 2005

This paper develops a general equilibrium simulation model of a heterogeneous population in which both consumption/saving and labour/leisure choices are endogenous. The authors use it to explore the effects of the different state benefit systems on the labour supply of old and older workers in Denmark, Germany and the UK. In broad terms, they find that differences in labour force participation can be accounted for by the differences in benefit structures. These conclusions are not altered when they allow for the effects of poor health at different ages. The UK system is found to be preferable by young persons while the German arrangement is preferred by old and older people (who make up the majority in the simulated population)

Efficient Aggregation of Panel Qualitative Survey Data

Qualitative business survey data are used widely to provide indicators of economic activity ahead of the publication of official data. Traditional indicators exploit only aggregate survey information, namely the proportions of respondents who report “up” and “down”. This paper examines disaggregate or firm-level survey responses. It considers how the responses of the individual firms should be quantified and combined if the aim is to produce an early indication of official output data. Having linked firms’ categorical responses to official data using ordered discrete choice models, the paper proposes a statistically efficient means of combining the disparate estimates of aggregate output growth which can be constructed from the responses of individual firms. An application to firm-level survey data from the Confederation of British Industry shows that the proposed indicator can provide early estimates of output growth more accurately than traditional indicators.Survey Data; Indicators; Quantification; Forecasting; Forecast Combination

Simulating the transmission of wealth inequality via bequests

Answering the question of how much wealth inequality arises from inheritance inequality requires data that are unavailable and potentially uncollectable. The alternative approach taken here (from Blinder [1974, 1976] and Davies [1982]) is to simulate the transmission of inequality via bequests.Wealth

Simulating the Transmission of Wealth Inequity via Bequests

This paper develops, calibrates, and simulates a dynamic 88-period OLG model to study the intergenerational transmission of U.S. wealth inequality via bequests. The model features marriage, realistic fertility patterns, random death, assortative mating based on skills, heterogeneous skill endowments, heterogeneous rates of return, skill inheritability, progressive income taxation, and resource annuitization via social security. All bequests arise from imperfect annuitization. Nonetheless, the model generates a realistic ration of aggregate wealth to aggregate labor income, a realistic bequest flow relative to the stock of wealth, and a realistic wealth distribution at retirement. Skill differences, assortative mating, social security, and the time preference are the primary determinants of wealth inequality. Bequests do propagate wealth inequality, but only in the presence of social security, which disproportionately disinherits the lifetime poor. Intergenerational wealth immobility, also considered here, is primarily determined by the inheritance of skills from one's parents and the magnification of the impact of this inheritance by marital sorting.