Abstract
We develop a dynamic macroeconomic model encompassing heterogeneity in households' attitudes towards risk, and we allow agents to share aggregate volatility by trading safe assets. In equilibrium, when volatility increases, low-risk-averse households, who hold a long position in risky assets, perceive a higher certainty-equivalent future return on capital. The perceived yield may also increase for high-risk-averse agents, who hold riskless assets. In response to a rise in certainty-equivalent expected returns, savings decrease due to a limited willingness to substitute consumption over time. This generates a negative response of aggregate investment to an increase in systematic volatility, showing that the aggregate behavior of an heterogeneous agents economy can be different from the behavior originating from an `average' representative agent. The appearance of degenerate wealth distributions is avoided by allowing the risk aversion of each household to change stochastically over time.
Lingua originale | Inglese |
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pagine (da-a) | 223-264 |
Numero di pagine | 42 |
Rivista | JOURNAL OF ECONOMICS |
Volume | 2019 |
Numero di pubblicazione | 127 |
DOI | |
Stato di pubblicazione | Pubblicato - 2019 |
All Science Journal Classification (ASJC) codes
- Business, Management e Contabilità Generali
- Economia ed Econometria
Keywords
- Aggregate investment
- heterogeneity
- risk aversion
- volatility