Modelling income processes with lots of heterogeneity.
All empirical models of earnings processes in the literature assume a good deal of homogeneity. In contrast to this we model earnings processes allowing for lots of heterogeneity between agents. We also introduce an ex- tension to the linear ARMA model that allows that the initial convergence to the long run may be di¤erent from that implied by the conventional ARMA model. This is particularly important for unit root tests which are actually tests of a composite of two independent hypotheses....Expand abstract
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