Risk and ambiguity in models of business cycles

We inject aggregate uncertainty — risk and ambiguity — into an otherwise standard business cycle model and describe its consequences. We find that increases in uncertainty generally reduce consumption, but they do not account, in this model, for either the magnitude or the persistence of the most recent recession. We speculate about extensions that might do better along one or both dimensions.

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Year of publication:	2015
Authors:	Backus, David ; Ferriere, Axelle ; Zin, Stanley
Published in:	Journal of Monetary Economics. - Elsevier, ISSN 0304-3932. - Vol. 69.2015, C, p. 42-63
Publisher:	Elsevier
Subject:	Uncertainty \| Smooth ambiguity \| Certainty equivalent \| Recursive preferences \| Pricing kernel \| Asset returns \| Learning

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Type of publication:	Article
Classification:	E32 - Business Fluctuations; Cycles ; D81 - Criteria for Decision-Making under Risk and Uncertainty ; G12 - Asset Pricing
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10011208553