Working Paper

The age-time-cohort problem and the identification of structural parameters in life-cylce models

Abstract: The 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 the standard 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: Demography;

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Working Papers

Publication Date: 2013

Number: 707