Singh, S.

Stoltenberg, C.A.

English

We develop a consumption risk-sharing model that distinguishes households' perceived income uncertainty from income uncertainty as measured by an econometrician. Households receive signals on their future disposable income that can drive a gap between the two uncertainties. Accounting for the difference in uncertainty, the model jointly explains three consumption risk sharing measures in US microdata that are not captured without the difference: (i) the cross-sectional variance of households' consumption, (ii) the covariance of current consumption and income growth and (iii) the income-conditional mean of household consumption. Households' perceived income uncertainty is 12% lower than the uncertainty of an econometrician which is consistent with direct estimates of the predictive power of subjective income expectations

International Migration, Integration and Social Cohesion online publications

Accounting for Households' Perceived Income Uncertainty in Consumption Risk Sharing

https://pure.uva.nl/ws/files/19941631/Uncertainty_Dec17.pdf

Accounting for Households' Perceived Income Uncertainty in Consumption Risk Sharing

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International Migration, Integration and Social Cohesion online publications