The Hidden Interaction: Household Consumption and Advance Information about Future Income
[Job Market Paper – Link to paper]
This paper studies how advance information about future labour income affects current household consumption. Combining a nonlinear panel method with structural modelling, I discover a positive correlation between current consumption and future persistent income changes. My results suggest that households with advance information are better self-insured against persistent income shocks due to anticipatory consumption smoothing. Furthermore, I find that the established understanding on the prevalence of income risks may be systematically distorted when the existence of advance information is not properly recognized.
