Euler Equations, Subjective Expectations and Income Shocks
Bibliographic Data
| ID | 9724596 |
|---|---|
| Authors | Orazio Attanasio (0000-0003-3693-4393, University College London and Institute for Fiscal Studies), Ágnes Kovács (0000-0001-7253-8617, University of Manchester), Krisztina Molnar (0000-0002-5204-5839, Norwegian School of Economics) |
| Year | 2020 |
| Volume | 87 |
| Issue | 346 |
| Pages | 406-441 |
| Publication date | 2020-04-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | Economica (JOURNAL) |
| Journal identifiers | ISSN: 0013-0427 • E-ISSN: 1468-0335 |
| Publisher | Wiley (PUBLISHER • GB) |
| DOI | 10.1111/ecca.12318 |
| OpenAlex | W2600103385 |
| Language | EN |
| Citations received | 1 |
| References cited | 47 |
In this paper, we make three substantive contributions. First, we use elicited subjective income expectations to identify the levels of permanent and transitory income shocks in a lifecycle framework. Second, we use these shocks to assess whether households’ consumption is insulated from them. Third, we use the shock data to estimate an Euler equation for consumption. We find that households are able to smooth transitory shocks, but adjust their consumption in response to permanent shocks, albeit not fully. The estimates of the Euler equation parameters with and without expectational errors are similar, which is consistent with rational expectations. We break new ground by combining data on subjective expectations about future income from the Michigan Survey with microdata on actual income from the Consumer Expenditure Survey
Consumer Expenditure Survey · Consumption (sociology) · Econometrics · Economics · Euler equations · Macroeconomics · Microdata (statistics) · Monetary economics · Permanent income hypothesis · Rational expectations · Shock (circulatory) · Simultaneous equations model · Statistics · Survey data collection · Financial Literacy, Pension, Retirement Analysis · Housing Market and Economics · Mathematics · Monetary Policy and Economic Impact
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| Unique citing works | 1 |
|---|---|
| Citations per year | 1 |
| Citation span | 2025 - 2025 (1) |
| Citation velocity | recent |
| Highly cited | No |
| Citation types | Neutral: 1 |