Working Paper

The Age-Time-Cohort Problem and the Identification of Structural Parameters in Life-Cycle Models

Abstract: A standard approach to estimating structural parameters in life-cycle models imposes sufficient assumptions on the data to identify the ?age profile\" of outcomes, then chooses model parameters so that the model's age profile matches this empirical age profile. I show that this approach is both incorrect and unnecessary: incorrect, because it generally produces inconsistent estimators of the structural parameters, and unnecessary, because consistent estimators can be obtained under weaker assumptions. I derive an estimation method that avoids the problems of the standard approach. I illustrate the method?s benefits analytically in a simple model of consumption inequality and numerically by reestimating the classic life-cycle consumption model of Gourinchas and Parker (2002).

Keywords: Age-time-cohort identification problem; Life-cycle models;

JEL Classification: C23; D91; J1;

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2017-10-19

Number: WP-2017-18

Pages: 56 pages