Disentangling Age, Cohort and Time Effects in the Additive Model

23 Pages Posted: 27 Jul 2006

See all articles by David J. McKenzie

David J. McKenzie

World Bank - Development Research Group (DECRG); IZA Institute of Labor Economics

Abstract

This paper presents a new approach to the old problem of linear dependency of age, cohort and time effects. It is shown that second differences of the effects can be estimated without any normalization restrictions, providing information on the shape of the age-, cohort- and time-effect profiles, and enabling identification of structural breaks. A Wald test is provided to test the popular linear and quadratic specifications against a very general alternative. The method is illustrated through examples which show its ability to detect structural breaks in time effects as a result of the Mexican peso crisis, and to determine whether the age-effect profile in the variance of Taiwanese log consumption is concave or convex.

Suggested Citation

McKenzie, David John, Disentangling Age, Cohort and Time Effects in the Additive Model. Oxford Bulletin of Economics and Statistics, Vol. 68, No. 4, pp. 473-495, August 2006, Available at SSRN: https://ssrn.com/abstract=920952 or http://dx.doi.org/10.1111/j.1468-0084.2006.00173.x

David John McKenzie (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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IZA Institute of Labor Economics ( email )

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