Quantitative Economics
Journal Of The Econometric Society
Edited by: Stéphane Bonhomme • Print ISSN: 1759-7323 • Online ISSN: 1759-7331
Quantitative Economics: Mar, 2013, Volume 4, Issue 1
Decomposing changes in income risk using consumption data
Richard Blundell, Hamish Low, Ian Preston
We develop a new approach to the decomposition of income risk within a non-
stationary model of intertemporal choice. The approach allows for changes in in-
come risk over the life cycle and across the business cycle, allowing for mixtures of
persistent and transitory components in the dynamic process for income. We fo-
cus on what can be learned from repeated cross-section data alone. Evidence from
a stochastic simulation of consumption choices in a nonstationarity environment
is used to show the robustness of the method for decomposing income risk. The
approach is used to investigate the changes in income risk in Britain across the in-
equality growth period from the late 1970s to the late 1990s. We document peaks
in the variance of permanent shocks at the time of recessions.
Keywords. Income risk, consumption, nonstationarity, inequality.
JEL classification. C30, D52, D91.
stationary model of intertemporal choice. The approach allows for changes in in-
come risk over the life cycle and across the business cycle, allowing for mixtures of
persistent and transitory components in the dynamic process for income. We fo-
cus on what can be learned from repeated cross-section data alone. Evidence from
a stochastic simulation of consumption choices in a nonstationarity environment
is used to show the robustness of the method for decomposing income risk. The
approach is used to investigate the changes in income risk in Britain across the in-
equality growth period from the late 1970s to the late 1990s. We document peaks
in the variance of permanent shocks at the time of recessions.
Keywords. Income risk, consumption, nonstationarity, inequality.
JEL classification. C30, D52, D91.
Supplemental Material
Journal News
March 5, 2024
Announcing the New Journal Editors
The terms of the Editors of the Econometric Society's three journals end June 30, 2025. We are pleased to announce the incoming Editors and to thank the outgoing Editors for their excellent and continuing service.
Econometrica: Since 2019, Guido Imbens has served as the 14th Editor of Econometrica. On July 1, 2025, Marina Halac will become the Editor.
Quantitative Economics: Stéphane Bonhomme has been the Editor of Quantitative Economics since 2021. His successor will be Bernard Salanié.
Theoretical Economics: The Editor of Theoretical Economics since 2021 has been Simon Board. Taking over for him in July 2025 will be Federico Echenique.
Guido, Stéphane, and Simon have been outstanding Editors. We are grateful to them for the work they have done and will continue to do, and we look forward to further congratulating them next year. We believe Marina, Bernard, and Federico will be outstanding successors and we thank them in advance for their service.
Finally, we are grateful to Larry Samuelson for chairing all three search committees, and we thank the search committee members for their hard and fruitful work:
Econometrica: Christian Dustmann, Lars Hansen, Alessandro Lizzeri, George Mailath, Ariel Pakes, Helene Rey, and Elie Tamer.
QE: Kate Ho, Michael Keane, Felix Kubler, Whitney Newey, and Frank Schorfheide.
TE: Jeff Ely, Johannes Horner, Gilat Levy, Meg Meyer, and Ran Spiegler.
