Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/217316 
Authors: 
Year of Publication: 
2018
Citation: 
[Journal:] Central Bank Review (CBR) [ISSN:] 1303-0701 [Volume:] 18 [Issue:] 2 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2018 [Pages:] 41-50
Publisher: 
Elsevier, Amsterdam
Abstract: 
In this paper, I investigate the effects of alternative risk aversion formulations on business cycle properties of an otherwise standard real business cycle economy. I first report on the implications of different risk aversion formulations on impulse response functions of real variables, and show that when risk aversion coefficient co-moves counter-cyclically, responses of real variables vary sizeably due to additional wedges both in the intratemporal and the intertemporal margin. Next, I show that formulating the risk aversion coefficient as random walk instead of a deep structural parameter generates better fit with observed volatilities of real variables. Finally, I report that modelling risk aversion coefficient in an endogenously-driven counter-cyclical way improves match with data on real variable correlations.
Subjects: 
Business cycle statistics
Real business cycles
Time-varying risk
Risk preferences
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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