¹¹The size of the first shock (the wealth shock) is arbitrarily set equal to 1 unit of permanent income. The income growth shock is an increase from 1.5 to 2.5 percent per year, roughly matching the rise in the ten-year productivity growth rate expected by the respondents to the Survey of Professional Forecasters between the early 1990s and the year 2001. (The annualized ten-year ahead forecast of productivity growth increased from 1.52 percent in 1996 to 2.48 percent in 2001, see http://www.philadelphiafed.org/research-and-data/real-time-center/survey-of-professional-forecasters/data-files/PROD10/.)