High Frequency Income Dynamics

We generalize the canonical permanent-transitory income process to allow for infrequent shocks. The distribution of growth rates can then have a discrete mass point at zero and fat tails as observed in data. provide analytical formulas unconditional conditional distributions higher-order moments. prove set identification results numerically validate that we simultaneously identify frequency, variance, persistence estimate on monthly panel data 400,000 Danish males over 8 years. When allowing shocks be infrequent, proposed closely match central features