²⁰First, we generated income draws according to the income process in the KS-JEDC model. Then, following the method in Carroll and Samwick (1997), we estimated the variances under the assumption that these income draws were produced by the process where . In doing so, as in Carroll and Samwick (1997), the draws of are excluded when is very low relative to its mean (see Carroll and Samwick (1997) for details about this restriction).