Estimating Household Consumption Insurance

22 Pages Posted: 16 Mar 2017 Last revised: 6 Nov 2020

See all articles by Arpita Chatterjee

Arpita Chatterjee

UNSW Australia Business School, School of Economics

James Morley

University of Sydney - School of Economics

Aarti Singh

The University of Sydney - School of Economics

Date Written: November 5, 2020

Abstract

Blundell, Pistaferri, and Preston (American Economic Review, 2008, 98(5), 1887-1921) report an estimate of household consumption insurance with respect to permanent income shocks of 36%. In replicating findings for their model and data, we find that this estimate is distorted by a code error and is not robust to weighting scheme for GMM or consideration of quasi maximum likelihood estimation (QMLE), which produces a significantly higher estimate of consumption insurance at 55%. For sub-groups by age and education, the differences between estimates across methods are even more pronounced and QMLE provides new insights into heterogeneity across households compared to the original study. Monte Carlo experiments using non-Normal shocks suggest that consumption insurance estimates for the model are more accurate for QMLE than GMM, including when correcting for bias and especially given a smaller sample such as is only available when looking at sub-groups.

Keywords: consumption insurance; weighting schemes; quasi maximum likelihood

JEL Classification: E21; C13; C33

Suggested Citation

Chatterjee, Arpita and Morley, James and Singh, Aarti, Estimating Household Consumption Insurance (November 5, 2020). UNSW Business School Research Paper No. 2017-07, Available at SSRN: https://ssrn.com/abstract=2933226 or http://dx.doi.org/10.2139/ssrn.2933226

Arpita Chatterjee (Contact Author)

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

James Morley

University of Sydney - School of Economics ( email )

Rm 607 Social Sciences Building
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://https://sites.google.com/site/jamescmorley/

Aarti Singh

The University of Sydney - School of Economics ( email )

Rm 370 Merewether (H04)
The University of Sydney
Sydney, NSW 2006 2008
Australia

HOME PAGE: http://sydney.edu.au/arts/economics/staff/academic/aarti_singh.shtml

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