HIGHER-ORDER INCOME RISK OVER THE BUSINESS CYCLE

• 成果类型: Article
• 署名作者: Busch, Christopher; Ludwig, Alexander
• 署名单位: Leibniz Association; Ifo Institut; University of Munich; Goethe University Frankfurt
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/iere.12685
• 发表日期: 2024
• 页码: 1105-1131
• 关键词: life-cycle; idiosyncratic risk; temporal behavior; equity premium; asset returns; consumption; DYNAMICS; cost; earnings; substitution

摘要

We explore the consequences of higher-order risk in a standard incomplete-markets life-cycle model. We calibrate the model using a canonical income process with persistent and transitory risk, extended to feature cyclical shock distributions with left-skewness and excess kurtosis. We estimate this income process for U.S. household data, and find shocks to be highly leptokurtic, with countercyclical variance and procyclical skewness of persistent shocks. In the model, first, higher-order risk has sizable welfare implications; second, it matters quantitatively for the welfare costs of cyclical idiosyncratic risk; third, it has nontrivial implications for self-insurance against shocks.