Suppose that we find that temporary income shocks (such as those due to weather fluctuations) have small effects on the consumption of a household. This is evidence that households can smooth such shocks, but the smoothing may arise from self-insurance, credit, or mutual insurance. If you have comprehensive data on consumption and income for the household over several periods of time, discuss how you might use the intertemporal data to distinguish between these three sources of smoothing.

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Temporary income shocks have less impact on household use than permanent income shock Families ... View the full answer