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.

More on this topic

BFI Working Paper·Jun 10, 2026

The Enjoyment Paradox: College-Educated Mothers Invest More in Their Children’s Learning and Enjoy It Less

Ariel Kalil, Haoxuan Liu, and Ritika Sethi
Topics: Early Childhood Education, Employment & Wages, Higher Education & Workforce Training
BFI Working Paper·May 28, 2026

Explaining the Historical Rise and Recent Decline in Social Security Disability Insurance Enrollment

Manasi Deshpande, Maxwell Kellogg, Magne Mogstad, and Kuan-Ju Tseng
Topics: Employment & Wages
BFI Working Paper·May 18, 2026

Sophisticated Borrowing Constraints and Macroeconomic Dynamics

Al-Mahdi Ebsim, Chen Lian, Yueran Ma, Pablo Ottonello, and Diego J. Perez
Topics: Financial Markets