Author:
Aebi Robert,Neusser Klaus,Steiner Peter
Abstract
Summary
Based on a relative entropy approach, this paper proposes a method to estimate or update transition matrices using just cross-sectional observations at two points in time. The method is then applied to explain the development of the US income distribution. Starting from three hypothesized transition matrices and a transition matrix estimated from the PSID data, we show how these matrices must be adjusted in the light of the cross-sectional information. Finally, we explore the consequences of these updated transition matrices for the future development of the US income distribution.
Publisher
Springer Science and Business Media LLC
Subject
Economics and Econometrics,Statistics and Probability
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