Ambiguity, Low Risk-Free Rates and Consumption Inequality

Autor:	Yulei Luo, Eric R. Young, Jun Nie
Rok vydání:	2020
Předmět:	Consumption (economics) Economics and Econometrics Macroeconomic model Inequality Quantitative analysis (finance) General equilibrium theory media_common.quotation_subject Econometrics Economics Ambiguity Welfare media_common Interest rate
Zdroj:	The Economic Journal. 130:2649-2679
ISSN:	1468-0297 0013-0133
DOI:	10.1093/ej/ueaa045
Popis:	Macroeconomists failed to predict the Great Recession, suggesting that the existing macroeconomic models may have been misspecified. Bearing in mind this potential misspecification or ‘model uncertainty’, how do agents’ optimal decisions change? Furthermore, how large are the welfare costs of model misspecification? To shed light on these questions, we develop a tractable continuous-time general equilibrium model to show that a fear of model misspecification reduces both the equilibrium interest rate and the relative inequality of consumption to income, making the model’s predictions closer to the data. Our quantitative analysis shows that the welfare costs of model uncertainty are sizable.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_________::94a79e2811ece8a6f0971f95157ecc4e https://doi.org/10.1093/ej/ueaa045 Zobrazit plný text záznamu Plný text ve formátu PDF Plný text ve formátu HTML
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