Authors: Martín Almuzara, Manuel Arellano, Richard Blundell, and Stéphane Bonhomme
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Staff Reports
Nonlinear Micro Income Processes with Macro Shocks
Number 1162
August 2025
August 2025
JEL classification: C23
We propose a nonlinear framework to study the dynamic transmission of aggregate and idiosyncratic shocks to household income that exploits both macro and micro data. Our approach allows us to examine empirically the following questions: (a) How do business-cycle fluctuations modulate the persistence of heterogeneous individual histories and the risk faced by households? (b) How do aggregate and idiosyncratic shocks propagate over time for households in different macro and micro states? (c) How do these shocks shape the cost of business-cycle risk? We develop new identification and estimation techniques and provide a detailed empirical analysis combining macro time series for the U.S. and a time series of household panels from the PSID.
Author Disclosure Statement(s)
Martín Almuzara
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Manuel Arellano
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Richard Blundell
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Stéphane Bonhomme
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Manuel Arellano
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Richard Blundell
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Stéphane Bonhomme
I declare that I have no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Almuzara, Martín, Manuel Arellano, Richard Blundell, and Stéphane Bonhomme. 2025. “Nonlinear Micro Income Processes with Macro Shocks.” Federal Reserve Bank of New York Staff Reports, no. 1162, August. https://doi.org/10.59576/sr.1162
Almuzara, Martín, Manuel Arellano, Richard Blundell, and Stéphane Bonhomme. 2025. “Nonlinear Micro Income Processes with Macro Shocks.” Federal Reserve Bank of New York Staff Reports, no. 1162, August. https://doi.org/10.59576/sr.1162
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