Measuring consumption smoothing in CEX data

Klein, Paul and Gervais, Martin (2010) Measuring consumption smoothing in CEX data Journal of Monetary Economics, 57, (8), pp. 988-999. (doi:10.1016/j.jmoneco.2010.08.009).


Full text not available from this repository.


A new method of measuring the degree of consumption smoothing is proposed and implemented using data from the Consumer Expenditure Survey. The structure of this Survey is such that estimators previously used in the literature are inconsistent, simply because income is measured annually and consumption is measured quarterly. An AR(1) structure is imposed on the income process to obtain a proxy for quarterly income through a projection on annual income. By construction, this proxy gives rise to a measurement error which is orthogonal to the proxy itself—as opposed to the unobserved regressor—leading to a consistent estimator. Our estimates are contrasted with the output of two estimators used in the literature. This comparison shows that while the first (OLS) estimator tends to overstate the degree of risk sharing, the second (IV) estimator grossly understates it.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1016/j.jmoneco.2010.08.009
ISSNs: 0304-3932 (print)
ePrint ID: 188399
Date :
Date Event
November 2010Published
Date Deposited: 24 May 2011 15:54
Last Modified: 18 Apr 2017 02:05
Further Information:Google Scholar

Actions (login required)

View Item View Item