Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/79595
Authors: 
Year of Publication: 
2013
Series/Report no.: 
SFB 649 Discussion Paper No. 2013-020
Publisher: 
Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk, Berlin
Abstract: 
This paper develops a simple New Keynesian model incorporating a small time-varying probability that the economy is struck by a disaster in the future. The model's main prediction is that a small increase in the disaster probability causes a recession in the economy, speci cally due to limited saving opportunities inasmuch as the model abstracts from capital accumulation. By contrasting its ndings to the ones of a comparable real business cycle model, this paper evaluates how the disaster hypothesis has been used and modelled in the existing literature.
Subjects: 
time-varying risk
disasters
rare events
nominal rigidities
JEL: 
E21
E31
E32
Document Type: 
Working Paper

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