Disaster Risk and Business Cycles
Motivated by the evidence that risk premia are large and countercyclical, this paper studies a tractable real business cycle model with a small risk of economic disaster, such as the Great Depression. An increase in disaster risk leads to a decline of employment, output, investment, stock prices, and interest rates, and an increase in the expected return on risky assets. The model matches well data on quantities, asset prices, and particularly the relations between quantities and prices, suggesting that variation in aggregate risk plays a significant role in some business cycles. (JEL E13, E32, E44, G32)
Year of publication: |
2012
|
---|---|
Authors: | Gourio, Francois |
Published in: |
American Economic Review. - American Economic Association - AEA. - Vol. 102.2012, 6, p. 2734-66
|
Publisher: |
American Economic Association - AEA |
Saved in:
Online Resource
Saved in favorites
Similar items by person
-
Gourio, Francois, (2012)
-
The Effect of Winter Weather on U.S. Economic Activity
Bloesch, Justin, (2015)
-
Size-Dependent Regulations, Firm Size Distribution, and Reallocation
Gourio, Francois, (2012)
- More ...