Essays on consumption smoothing.

2011-07
Loading...
Thumbnail Image

Persistent link to this item

Statistics
View Statistics

Journal Title

Journal ISSN

Volume Title

Title

Essays on consumption smoothing.

Published Date

2011-07

Publisher

Type

Thesis or Dissertation

Abstract

This dissertation investigates the consumption smoothing ability of households when they are hit by uninsurable income shocks. The first chapter investigates what is the true extent of income shocks to individuals, particularly for the female. Previous literature has focused exclusively on the residual uncertainty on male earnings, neglecting the female counterpart. One reason is because the majority of female do not participate in the labor market and focus on home production. Contrary to what is usually assumed in the literature, we model female endogenous participation choice and uncover their residual wage shock using an industry standard permanent and transitory wage model. We find that ignoring their participation decision would lead to a downward biased wage shock. Using our wage shocks estimate, we build a life cycle model to investigate the relationship between female labor force participation and family inequality. Through numerical simulation, we also shed lights on the insurance value provided by female labor supply in smoothing wage shocks. Our results suggest that although increase female labor force participation would lead to more inequality in a household level, female labor supply goes a long way in providing insurance value for smoothing wage shock. The second chapter contains a succinct literature review of what we know and what do not know for the consumption smoothing and income shocks. In particular, we will review what theory, in particular, the life cycle permanent income hypothesis, has to say about the consumption response to different degree of income shocks. We will then discuss what will happen when we depart from the assumptions in the permanent income hypothesis. The degree of the consumption response to income shocks can help us to understand the interplay between consumption inequality and income inequality. In particular, it can provide us an identification strategy to figure out why and when does consumption inequality has to follow income inequality. Finally, we will discuss some open questions remained in the literature. We will see why income shocks may not be that permanent after all. More importantly, we will see why there is a great need for the research frontier to look for a parsimonious income process that can on one hand explains the empirical facts and on the other hand robust to alternative identification strategies.

Keywords

Description

University of Minnesota Ph.D. dissertation. August 2011. Major: Economics. Advisors: Timothy J. Kehoe and Fabrizio Perri. 1 computer file (PDF); x, 74 pages.

Related to

Replaces

License

Collections

Series/Report Number

Funding information

Isbn identifier

Doi identifier

Previously Published Citation

Other identifiers

Suggested citation

Li, Ka Fai. (2011). Essays on consumption smoothing.. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/116020.

Content distributed via the University Digital Conservancy may be subject to additional license and use restrictions applied by the depositor. By using these files, users agree to the Terms of Use. Materials in the UDC may contain content that is disturbing and/or harmful. For more information, please see our statement on harmful content in digital repositories.