Testing full consumption insurance in the frequency domain
Santos-Monteiro, Paulo (2008) Testing full consumption insurance in the frequency domain. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.874).
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Full consumption insurance implies that consumers are able to perfectly share risk by equalizing state by state their inter-temporal marginal rates of substitution in the presence of idiosyncratic endowment shocks. In this paper I test the implications of full consumption insurance using band spectrum regression methods. I argue that moving to the frequency domain provides a possible solution to many difficulties tied to tests of perfect risk sharing. In particular, it provides a unifying framework to test consumption smoothing, both over time and across states of nature. Full consumption insurance is soundly rejected at business cycle frequencies.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory|
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Consumption (Economics), Home economics, Risk assessment, Regression analysis -- Mathematical models|
|Series Name:||Warwick economic research papers|
|Publisher:||University of Warwick, Department of Economics|
|Place of Publication:||Coventry|
|Official Date:||24 October 2008|
|Number of Pages:||32|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Fundação para a Ciência e a Tecnologia (FCT)|
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