Estimating High Frequency Income Risk using eIndkomst
The business cycle fluctuations in aggregate private consumption is larger than standard consumption-saving models predict when we require that they also match the distribution of wealth.1 The reason is that a large share of households should be able to smooth consumption because they have access to substantial financial buffers in form of e.g. housing equity. This is a problem for models of monetary and fiscal policy where the consumption response is important. Recent research has, however, shown that a more realistic high frequency specification of the income risk households face can help solve the puzzle. The objective of the study proposed here is to estimate a realistic high frequency process for the income risk faced by Danish households using the new eIndkomst register.