All empirical models of earnings processes in the literature assume a good deal of homogeneity. In contrast to this we model earnings processes allowing for lots of heterogeneity between agents. We also introduce an extension to the linear ARMA model that allows that the initial convergence to...

All empirical models of earnings processes in the literature assume agood deal of homogeneity. In contrast to this we model earnings processesallowing for lots of heterogeneity between agents. We also introduce an ex-tension to the linear ARMA model that allows that the initial convergenceto the...

We consider the decomposition of shocks to a dynamic process into a persistent and a transitory component. Without additional assumptions (such as zero correlation) the decomposition of shocks into a persistent and transitory component is indeterminate. The assumption that is conventional in the...