This paper examines the effects of time-varying volatility on welfare. I construct a tractable endogenous growth model … with recursive preferences, stochastic volatility, and capital adjustment costs. The model shows that a rise in volatility … a risk-averse household, volatility risk can increase or decrease welfare, depending on model parameters. When …

volatility of shocks is important for the selection and duration of each equilibrium. Sufficiently adverse shocks in periods of … low macroeconomic volatility trigger severe and protracted downturns. The magnitude of government intervention is critical …