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Uninsurable income risk is often cited as an explanation for empirical deviations from the Lifecycle/Permanent-Income Hypothesis such as the observation that the lifecycle profile of mean consumption is hump-shaped. Most methods used for estimating income uncertainty essentially measure the cross-sectional variance of a subpopulation rather than the true uncertainty or riskiness perceived by consumers. In this paper, the author employees a nonparametric approach to estimate idiosyncratic income uncertainty. The author measures income uncertainties as the variance of income forecasting errors at different ages and over different time horizons.
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