The persistent-transitory representation for earnings processes

• 成果类型: Article
• 署名作者: Ejrnaes, Mette; Browning, Martin
• 署名单位: University of Copenhagen; University of Oxford
• 刊物名称: QUANTITATIVE ECONOMICS
• ISSN/ISSBN: 1759-7323
• DOI: 10.3982/QE239
• 发表日期: 2014
• 页码: 555-581
• 关键词: Earnings process; persistent-transitory shocks; ARMA model; permanent-transitory shocks

摘要

We consider the decomposition of shocks to a dynamic process into a persistent and a transitory component. Without additional assumptions (such as zero correlation) the decomposition of shocks into a persistent and transitory component is indeterminate. The assumption that is conventional in the earnings literature is that there is no correlation. The Beveridge-Nelson decomposition that is widely used in time series analysis assumes a perfect correlation. Without restrictions on the correlation, the persistent-transitory decomposition is only set-identified. For reasonable autoregressive moving average (ARMA) parameters the bounds for widely used objects of interest are very wide. We illustrate that these disquieting findings are of considerable practical importance, using a sample of male workers drawn from the Panel Study of Income Dynamics (PSID).