DO PERMANENT SHOCKS EXPLAIN INCOME LEVELS? A COMMON CYCLE-COMMON TREND ANALYSIS OF REGIONAL INCOME LEVELS FOR CHINA

Superior Information, Income Shocks and the Permanent Income Hypothesis

According to the permanent income hypothesis with quadratic preferences, savings should react only to transitory income shocks, but not to permanent shocks. The problem is that income shock components are not separately observable. I show how the combination of income realizations with subjective expectations can help to identify separately the transitory and the permanent shock to income, thus...

Regional Income Divergence in China*

-------------------------------------------------------------------------------------------------------------------Abstract: Numerous policy studies have argued that conditions have prevailed in China since the open door economic reforms of the late 1970s that have encouraged rapid growth at the expense of regional income inequality across the provinces of China. In this paper we use recently d...

How Do Households Respond to Income Shocks

How do households respond to income shocks?∗

Commonly used consumption/saving models have radically different implications for households response to income shocks, ranging from the hands-to-mouth model, where consumption bears all the adjustment, to the complete markets model, where wealth bears all the adjustment. In this paper we use the Italian Survey of Household Income and Wealth, which is the only available micro dataset that conta...

Regional Income Inequality in China and Indonesia A Comparative Analysis