2018
DOI: 10.1007/s00712-018-0639-8
|View full text |Cite
|
Sign up to set email alerts
|

Risk aversion heterogeneity and the investment–uncertainty relationship

Abstract: A simple dynamic general-equilibrium model of savings and investment is populated by agents with Epstein-Zin preferences. Households are heterogeneous in their risk aversion, and trade riskless assets to share the aggregate risk. In equilibrium a higher volatility increases the certainty-equivalent future return for low-risk-averse individuals, who hold a long position in risky assets. The certainty-equivalent return may also increase for high-risk-averse agents, who hold safe assets. In response to a rise in … Show more

Help me understand this report

Search citation statements

Order By: Relevance

Paper Sections

Select...
2
1
1

Citation Types

0
4
0

Year Published

2018
2018
2024
2024

Publication Types

Select...
6

Relationship

0
6

Authors

Journals

citations
Cited by 6 publications
(4 citation statements)
references
References 52 publications
(60 reference statements)
0
4
0
Order By: Relevance
“…Finally, a third possibility is that firms react to high uncertainty with precautionary savings. This holds if firms are risk-averse (Jurado et al, 2015;Femminis, 2012;Saltari and Ticchi, 2007). 6 This channel suggests that credit shrinkage associated with high uncertainty periods may be demand driven, as opposed to the financial frictions story, which offers a supply-driven explanation of credit crunches.…”
Section: Introductionmentioning
confidence: 99%
“…Finally, a third possibility is that firms react to high uncertainty with precautionary savings. This holds if firms are risk-averse (Jurado et al, 2015;Femminis, 2012;Saltari and Ticchi, 2007). 6 This channel suggests that credit shrinkage associated with high uncertainty periods may be demand driven, as opposed to the financial frictions story, which offers a supply-driven explanation of credit crunches.…”
Section: Introductionmentioning
confidence: 99%
“…Nakamura (2002) shows that, under the assumption of a decreasing-returns-to-scale technology, uncertainty reduces investment activity if the lifetime of capital is shorter than the firm's planning horizon, even without irreversibility of investment. Saltari and Ticchi (2007) and Femminis (2012) outline that the presence of risk-aversion, although not sufficient by itself, can explain a negative effect of uncertainty on investment activity. Arellano, Bai, and Kehoe (2012), Christiano, Motto, and Rostagno (2014), Gilchrist, Sim, and Zakrajšek (2014), and Dorofeenko, Lee, Salyer, and Strobel (2016) emphasize the role of financial distortions through which uncertainty negatively affects investment.…”
Section: Introductionmentioning
confidence: 99%
“…Regarding the relationship between capital accumulation and volatility, there is a conflict between theoretical literature and empirical contributions (Femminis 2019). While academic research points to a favorable link between productivity shocks and investment, empirical data points to the adverse impacts of rising volatility on capital accumulation.…”
Section: Moderation Role Of Risk Aversionmentioning
confidence: 99%