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OpenSourceEcon / OGstoch-inc

Deterministic overlapping generations model with idiosyncratic stochastic income
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Stochastic income process #4

Open jdebacker opened 6 years ago

jdebacker commented 6 years ago

Let me know what you all think, but I suggest we have different lifecycle profiles and layer stochastic income of top of this. So there are both permanent and transitory differences in the income of households.

The idea is we have an average life-cycle profile for each "life-time income group" and then there is a stochastic process for some residual earnings (that follows a first order markov process).

This would affect how we compute the distribution, but I think it's pretty feasible.

cc @jorgebarro @rickecon

jorgebarro commented 6 years ago

@jdebacker, I think that makes sense, and we can actually include transitory shocks as well. In this case, there will be three shocks: 1) a persistent shock each period, 2) a transitory shock each period, and 3) a permanent shock drawn at the beginning of the life-cycle. This third shock generates the life-cycle groups. Storesletten, Telmer, and Yaron (2004) is a good resource for the parameters of the shock processes.