We introduce both idiosyncratic and aggregate shocks in an endogenous growth model with endogenous partial insurance to the idiosyncratic shock. Aggregate uncertainty introduces an additional channel that can play an important role in determining the effects of private information on expected...

Stochastic models with economy-wide shocks imply that the welfare costs of aggregate volatility are negligible. In reality idiosyncratic shocks are important, and empirical evidence suggests that their volatility is several times that of aggregate shocks. This paper introduces both types of...