To determine the effect of economic shocks on civil conflict, the empirical approach must be tailored to the shocks’ persistence. I illustrate this point by revisiting Miguel, Satyanath, and Sergenti (2004). MSS argue that lower rainfall levels and negative rainfall shocks increase the probability of civil conflict in Sub-Saharan Africa over the 1979-1999 period. I find MSS’s approach and concl...

We consider a general framework to study the evolution of wage and earnings residuals that incorporates features highlighted by two influential but distinct literatures in economics: (i) unobserved skills with changing non-linear pricing functions and (ii) idiosyncratic shocks that follow a rich stochastic process. Specifically, we consider residuals for individual i in period t of the form: Wi...

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...

Transitory and permanent shocks to income have been shown to be important determinants of household consumption. This paper shows that there are signifi cant diff erences in the development of transitory and permanent inequality of household income between demographic groups since the 1980s. Using data from the Panel Study of Income Dynamics the educational attainment and the composition of a h...

Stochastic behavior of stock returns is very important for investors and policy makers in the stock market. In this paper, the stochastic behavior of the return index of Tehran Stock Exchange (TEDPIX) is examined using unobserved component Markov switching model (UC-MS) for the 3/27/2010 until 8/3/2015 period. In this model, stock returns are decomposed into two components; a permanent componen...

Since the 2000s, large fluctuations in commodity prices have become a concern among policymakers regarding price stability. This paper investigates the effects of commodity price shocks on headline inflation with a monthly panel consisting of 144 countries. We find that the effects of commodity price shocks on inflation virtually disappear within about one year after the shock. While the effect...

1 This paper aims to bridge the gap between processes where shocks are permanent and those with transitory shocks by formulating a process in which the long run impact of each innovation is time varying and stochastic. Frequent transitory shocks are supplemented by occasional permanent shifts. The stochastic permanent breaks (STOPBREAK) process is based on the premise that a shock is more likel...

This paper examines the relationship between household income shocks and child labor. In particular, we investigate the extent to which transitory income shocks lead to increases in child labor and whether household asset holdings mitigate the effects of these shocks. Using data from a household panel survey in Tanzania, we find that both relationships are significant. We investigate mechanisms...