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·Jan 21, 2026

FinTech and Customer Capital

Bianca He, Lauren Mostrom, and Amir Sufi
Topics: Financial Markets, Technology & Innovation
BFI Working Paper·Jan 21, 2026

Business Concentration around the World: 1900-2020

Yueran Ma, Mengdi Zhang, and Kaspar Zimmermann
Topics: Economic Mobility & Poverty, Employment & Wages
BFI Working Paper·Jan 7, 2026

A World Trading System For Whom? Evidence from Global Tariffs

Rodrigo Adão, John Sturm Becko, Arnaud Costinot, and Dave Donaldson
Topics: Economic Mobility & Poverty, Employment & Wages