The Age-Time-Cohort Problem and the Identification of Structural Parameters in Life-Cycle Models

28 Pages Posted: 23 Oct 2017

See all articles by Sam Schulhofer-Wohl

Sam Schulhofer-Wohl

Federal Reserve Banks - Federal Reserve Bank of Dallas; Federal Reserve Bank of Chicago

Date Written: October, 2017

Abstract

A standard approach to estimating structural parameters in life-cycle models imposes sufficient assumptions on the data to identify the ?age profile\" of outcomes, then chooses model parameters so that the model's age profile matches this empirical age profile. I show that this approach is both incorrect and unnecessary: incorrect, because it generally produces inconsistent estimators of the structural parameters, and unnecessary, because consistent estimators can be obtained under weaker assumptions. I derive an estimation method that avoids the problems of the standard approach. I illustrate the method?s benefits analytically in a simple model of consumption inequality and numerically by reestimating the classic life-cycle consumption model of Gourinchas and Parker (2002).

JEL Classification: C23, D91, J1

Suggested Citation

Schulhofer-Wohl, Sam, The Age-Time-Cohort Problem and the Identification of Structural Parameters in Life-Cycle Models (October, 2017). FRB of Chicago Working Paper No. WP-2017-18, Available at SSRN: https://ssrn.com/abstract=3056194

Sam Schulhofer-Wohl (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

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PO Box 655906
Dallas, TX 75265-5906
United States

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

HOME PAGE: http://sschulh1.wordpress.com

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