RISK SHOCKS, RISK MANAGEMENT, AND INVESTMENT

Autor:	Jonathan E. Goldberg
Rok vydání:	2019
Předmět:	Economics and Econometrics Intermediary business.industry Incomplete markets Capital (economics) Systematic risk Equity (finance) Economics Monetary economics business Business risks Investment (macroeconomics) Risk management
Zdroj:	Macroeconomic Dynamics. 25:1779-1809
ISSN:	1469-8056 1365-1005
DOI:	10.1017/s1365100519000865
Popis:	This paper studies the macroeconomic effects of shocks to idiosyncratic business risk in an economy with endogenously incomplete markets. I develop a model in which firms face idiosyncratic risk and obtain insurance from intermediaries through contracts akin to credit lines. Insurance is imperfect due to limited commitment in financial contracts. Although steady-state capital is higher than if firms were constrained to issue only standard equity, a rise in uncertainty about idiosyncratic business outcomes leads to an endogenous reduction in risk sharing. This deterioration in risk sharing results from a general-equilibrium shortage of pledgeable assets and implies that the economy’s response to an increase in idiosyncratic business risk can be amplified by financial contracting rather than dampened. In a parametrized version of the model, a rise in idiosyncratic business risk generates a large increase in uncertainty about aggregate investment.
Databáze:	OpenAIRE
Externí odkaz:	https://explore.openaire.eu/search/publication?articleId=doi_dedup___::ef4360f30760b7ebc1cf8d917ca2753a https://doi.org/10.1017/s1365100519000865 Zobrazit plný text záznamu