A Tractable Income Process for Business Cycle Analysis

Thu, 01 Jan 2026 00:00:00 +0000

Guvenen, McKay, and Ryan estimate a stochastic income process for US male workers that simultaneously matches five empirical regularities from Social Security Administration administrative panel data covering 1978–2011: (i) flat and acyclical variance of income growth rates, (ii) volatile and procyclical Kelley skewness, (iii) very high kurtosis — targeted at 20 for one-year changes and 12 for five-year changes — (iv) a near-linear rise in cross-sectional log-income variance from age 25 to 55, and (v) a systematic factor structure in business cycle incidence whereby income losses during recessions are predictably related to a worker’s pre-recession income rank. All five facts are drawn from Guvenen et al. (2014) and Guvenen et al. (2021), which document them from SSA records on individual income histories.

Fatih Guvenen | Macro Paper Warehouse

A Tractable Income Process for Business Cycle Analysis