shocks affecting banks’ capital, liquidity and credit quality as well as revised banklevel risk perceptions. Relationship …

real economic activity growth, in line with a risk shock. Conversely, a certainty shock (a shock strongly decreasing …

We extend the canonical income process with persistent and transitory risk to shock distributions with left …-skewness and excess kurtosis, to which we refer as higher-order risk. We estimate our extended income process by GMM for household … show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications …