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A NOTE ON THE SIZE DISTRIBUTION OF CONSUMPTION: MORE DOUBLE PARETO THAN LOGNORMAL

Published online by Cambridge University Press:  14 September 2016

Alexis Akira Toda
Alexis Akira Toda*
Affiliation:
University of California, San Diego
*
Address correspondence to: Alexis Akira Toda, Department of Economics, University of California, San Diego. 9500 Gilman Drive, La Jolla, CA 92093-0508, USA; e-mail: [email protected].
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Abstract

The cross-sectional distribution of consumption is commonly approximated by the lognormal distribution. This note shows that consumption is better described by the double Pareto-lognormal distribution (dPlN), which has a lognormal body with two Pareto tails and arises as the stationary distribution in recently proposed dynamic general equilibrium models. dPlN outperforms other parametric distributions and is often not rejected by goodness-of-fit tests. The analytical tractability and parsimony of dPlN may be convenient for various economic applications.

Keywords

Gibrat's LawMultiplicative Idiosyncratic RiskInequalityPower Law
Type
Notes
Information
Macroeconomic Dynamics , Volume 21 , Issue 6 , September 2017 , pp. 1508 - 1518
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

I thank Kieran Walsh for collaboration and discussions, and Thomas Winberry, the associate editor, and two anonymous referees for comments and feedback that significantly improved the paper.

References

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