On the business cycle implications of alternative risk aversion formulations
Central Bank Review, cilt.18, sa.2, ss.41-50, 2018 (Scopus, TRDizin)
- Yayın Türü: Makale / Tam Makale
- Cilt numarası: 18 Sayı: 2
- Basım Tarihi: 2018
- Doi Numarası: 10.1016/j.cbrev.2018.02.001
- Dergi Adı: Central Bank Review
- Derginin Tarandığı İndeksler: Scopus, TR DİZİN (ULAKBİM)
- Sayfa Sayıları: ss.41-50
- Anahtar Kelimeler: Business cycle statistics, Real business cycles, Risk preferences, Time-varying risk
- Boğaziçi Üniversitesi Adresli: Evet
Özet
In this paper, I investigate the effects of alternative risk aversion formulations on business cycle properties of an otherwise standard real business cycle economy. I first report on the implications of different risk aversion formulations on impulse response functions of real variables, and show that when risk aversion coefficient co-moves counter-cyclically, responses of real variables vary sizeably due to additional wedges both in the intratemporal and the intertemporal margin. Next, I show that formulating the risk aversion coefficient as random walk instead of a deep structural parameter generates better fit with observed volatilities of real variables. Finally, I report that modelling risk aversion coefficient in an endogenously-driven counter-cyclical way improves match with data on real variable correlations.