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Aggregate uncertainty, disappointment aversion and the business cycle

Submitted by Júlia Fonseca (julia.f.fonseca@gmail.com) on 2013-06-24T17:08:45Z
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Previous issue date: 2013-06-17 / We investigate the eff ect of aggregate uncertainty shocks on real variables. More speci fically, we introduce a shock in the volatility of productivity in an RBC model with long-run volatility risk and preferences that exhibit generalised disappointment aversion. We find that, when combined with a negative productivity shock, a volatility shock leads to further decline in real variables, such as output, consumption, hours worked and investment. For instance, out of the 2% decrease in output as a result of both shocks, we attribute 0.25% to the e ffect of an increase in volatility. We also fi nd that this e ffect is the same as the one obtained in a model with Epstein-Zin- Weil preferences, but higher than that of a model with expected utility. Moreover, GDA preferences yield superior asset pricing results, when compared to both Epstein-Zin-Weil preferences and expected utility.

Identiferoai:union.ndltd.org:IBICT/oai:bibliotecadigital.fgv.br:10438/10940
Date17 June 2013
CreatorsFonseca, Julia Fernandes Araújo da
ContributorsBerriel, Tiago Couto, Brito, Ricardo D., Escolas::EPGE, FGV, Bonomo, Marco Antônio Cesar
Source SetsIBICT Brazilian ETDs
LanguageEnglish
Detected LanguageEnglish
Typeinfo:eu-repo/semantics/publishedVersion, info:eu-repo/semantics/masterThesis
Sourcereponame:Repositório Institucional do FGV, instname:Fundação Getulio Vargas, instacron:FGV
Rightsinfo:eu-repo/semantics/openAccess

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