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Estimating continuous-time income models

Schluter, Christian and Trede, Mark (2010) Estimating continuous-time income models University of Southampton (Discussion Papers in Economics and Econometrics, 1014).

Record type: Monograph (Discussion Paper)


While earning processes are commonly unobservable income flows which evolve in continuous time, observable income data are usually discrete, having been aggregated over time. We consider continuous-time earning processes, specifically (non-linearly) transformed Ornstein-Uhlenbeck processes, and the associated integrated, i.e. time aggregated process. Both processes are characterised, and we show that time aggregation alters important statistical properties. The parameters of the earning process are estimable by GMM, and the finite sample properties of the estimator are investigated. Our methods are applied to annual earnings data for the US. It is demonstrated that the model replicates well important features of the earnings distribution.

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Published date: July 2010
Keywords: integrated non-linearly transformed ornstein-uhlenbeck process, temporal aggregation


Local EPrints ID: 161639
ISSN: 0966-4246
PURE UUID: 5c7cad73-e14f-4487-a1ad-0b6258b03187

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Date deposited: 03 Aug 2010 09:19
Last modified: 18 Jul 2017 12:33

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