Revisions - Chapter 4

[nilshg]

• Most importantly, change "optimal belief" to "rational belief"
• Discuss downward bias in estimates of persistence and the non-linearity when rho goes to 1 (if possible solve model for rho=1)
• In the comparative statics, note that when e.g. rho is changed, the rest of the income process is not adjusted, so that the resulting simulation is not based on an empirical income process anymore