Subjective Income Expectations and Income Risk

22 Pages Posted: 3 Feb 2006

See all articles by Xavier Ramos

Xavier Ramos

Universitat Autònoma de Barcelona; Institute for the Study of Labor (IZA)

Christian Schluter

University of Southampton - Division of Economics

Date Written: January 2006

Abstract

In the context of income dynamics, we investigate whether aspects of agents' superior information relative to the econometrician's limited information are captured in subjective expectations data. It is natural, for instance, to assume that the econometrician cannot observe idiosyncratic shocks to both permanent and transitory components of income. In this case perceptions of risk differ between agents and the econometrician. Our tests are based on panel data elicited yearly from British households. We find evidence of superior information consistent with standard income modelling.

Keywords: subjective expectation reports, income risk, limited information variances

JEL Classification: D12, D31, D84

Suggested Citation

Ramos, Xavier and Schluter, Christian, Subjective Income Expectations and Income Risk (January 2006). IZA Discussion Paper No. 1950. Available at SSRN: https://ssrn.com/abstract=880423

Xavier Ramos (Contact Author)

Universitat Autònoma de Barcelona ( email )

Dept. Economia Aplicada
Campus UAB
Bellaterra, Barcelona 08193
Spain

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Christian Schluter

University of Southampton - Division of Economics ( email )

Southampton, SO17 1BJ
United Kingdom
+44 2380 59 5909 (Phone)
+44 2380 59 3858 (Fax)

HOME PAGE: www.economics.soton.ac.uk/staff/schluter/

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