We extend the canonical income process with persistent and transitory risk to shock distributions with left …-skewness and excess kurtosis, to which we refer as higher-order risk. We estimate our extended income process by GMM for household … show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications …

economic theory and argue that, while the ‘global savings glut’ may account for the cycle’s initial phase, other factors such … as the conduct of monetary policy and perceptions of declining macroeconomic risk were more important from the mid-2000s …