Benhima, Kenza; Massenot, Baptiste - In: American Economic Journal: Macroeconomics 5 (2013) 4, pp. 68-106
Fear of risk provides a rationale for protracted economic downturns. We develop a real business cycle model where investors with decreasing relative risk aversion choose between a risky and a safe technology that exhibit decreasing returns. Because of a feedback effect from the interest rate to...