High Frequency Income Dynamics

50 Pages Posted: 1 Apr 2021 Last revised: 10 Apr 2021

See all articles by Jeppe Druedahl

Jeppe Druedahl

University of Copenhagen - Department of Economics

Thomas Jørgensen

University of Copenhagen

Michael Graber

University College London

Date Written: March 31, 2021


We generalize the canonical permanent-transitory income process to allow for infrequent shocks. The distribution of income growth rates can then have a discrete mass point at zero and fat tails as observed in income data. We provide analytical formulas for the unconditional and conditional distributions of income growth rates and higher-order moments. We prove a set of identification results and numerically validate that we can simultaneously identify the frequency, variance, and persistence of income shocks. We estimate the income process on monthly panel data of 400,000 Danish males observed over 8 years. When allowing shocks to be infrequent, the proposed income process can closely match the central features of the data.

Keywords: consumption-saving, income dynamics, panel data models

JEL Classification: C33, D31, J30

Suggested Citation

Druedahl, Jeppe and Jørgensen, Thomas and Graber, Michael, High Frequency Income Dynamics (March 31, 2021). Available at SSRN: https://ssrn.com/abstract=3816424 or http://dx.doi.org/10.2139/ssrn.3816424

Jeppe Druedahl (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.

Thomas Jørgensen

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165

Michael Graber

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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