Imputing Household Spending in the Panel Study of Income Dynamics: A Comparison of Approaches

One of the drawbacks of using household surveys to investigate macroeconomic issues has been a lack of a dataset that contains both adequate household expenditure data and comprehensive household wealth and income data. This paper compares alternative methods of imputing household expenditures in the Panel Study of Income Dynamics (PSID)—that of Blundell et al. (2006) and Cooper (2009). It also analyzes the additional expenditure questions included in the PSID starting in 1999 and expanded in 2005. The paper finds that the Blundell et al. (2006) method works well for imputing households’ nondurable expenditures between 1980 and 2007. The results further show that the imputation method in Cooper (2009) dominates that of Blundell et al. (2006) for generating data on households’ total expenditures. The decision of which imputation approach to use or whether to use the actual PSID expenditure data from 1999 to 2007 will depend on the user’s research question(s) and analysis goals. JEL Classification: E20 Daniel Cooper is an economist in the research department of the Federal Reserve Bank of Boston. His e-mail address is [email protected]. This paper, which may be revised, is available on the web site of the Federal Reserve Bank of Boston at http://www.bos.frb.org/economic/wp/index.htm. Thank you to Madeleine Weingarten for her research assistance. I could not have completed this paper without her help. Thank you as well to Kathy Bradbury and Bob Triest for helpful comments. All errors are my own. The views expressed in this paper are those of the author and do not necessarily represent the views of the Federal Reserve Bank of Boston or the Federal Reserve System. This version: December 2010