Permanent versus transitory income shocks over the business cycle

This paper investigates how income shocks shape consumption dynamics over the business cycle. First, we break new ground and create a unique panel dataset of transitory permanent by combining household-level expectations with realizations from DNB Household Survey for Netherlands in 2006–2018. We then use first second moments identified structural life-cycle framework show that model matches observed patterns well. Finally, using counterfactual simulations, assess importance nature (permanent hypothesis), future uncertainties (precautionary saving motive), cohort effects, they have individually shaped period Netherlands.