This paper assesses the accuracy of decomposing income risk into permanent and transitory components using income and consumption data. We develop a specific approximation to the optimal consumption growth rule and use Monte Carlo evidence to show that this approximation can provide a robust...

We develop a new approach to the decomposition of income risk within a non- stationary model of intertemporal choice. The approach allows for changes in in- come risk over the life cycle and across the business cycle, allowing for mixtures of persistent and transitory components in the dynamic...

This paper develops a new method for estimating a demand function and the welfare consequences of price changes. The method is applied to gasoline demand in the United States and is applicable to other goods. The method uses shape restrictions derived from economic theory to improve the...