Estimation of Poverty Transition Matrices with Noisy Data

This paper investigates potential measurement error biases in poverty transition matrices. We compare transition matrices based on survey consumption data to measurement-error-free simulated consumption, which is built on initial conditions and parameters estimated from a basic consumption dynamics model allowing for measurement error. We …nd that measurement error in consumption data magni…es economic mobility in and out of poverty. Roughly 45% of households initially in poverty at time t 1 are found to be out of poverty at time t using consumption data from the Korean Labor and Income Panel Study (KLIPS). However, when we remove measurement error through a model-based simulation, only between 17 and 20% of households initially in poverty are found to be out of poverty. JEL Classi…cations: C81, I32, O15