Income Uncertainty and Non-linear Dynamics: A Subjective Expectations Framework
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Series
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Speaker(s)Henrique Basso (Banco de España, Spain)
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FieldEmpirical Microeconomics
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LocationErasmus University Rotterdam, Campus Woudestein, Langeveld 3.18
Rotterdam -
Date and time
October 27, 2025
11:30 - 12:30
Abstract
This paper proposes a framework to estimate the parameters of a flexible income process based on combining probabilistic subjective income expectations and realized income data from the most recent waves of the Spanish Household Finance Survey. The non-linear and non-normal features documented in realized household income data are largely absent from the subjective income expectations data when elicitation error is disregarded. When controlling for potential elicitation errors the income process obtained still has noticeably less asymmetries and non-linearities than the one estimated with realized data. These differences have implications for the accumulation of wealth and the degree of self-insurance. Joint paper with Olympia Bover, Julio Galvez and Laura Hospido.