Risky Business Cycles
Abstract/Contents
- Abstract
- We identify a shock that explains the bulk of fluctuations in equity risk premia, and show that the shock also explains a large fraction of the business-cycle comovements of output, consumption, employment, and investment. Recessions induced by the shock are associated with reallocation away from full-time permanent positions, towards part-time and flexible contract workers. A flexible-price model with labor market frictions and fluctuations in risk appetite can explain all of these facts, both qualitatively and quantitatively. The size of risk-driven fluctuations depends on the relationship between the riskiness and productivity of different stores of value: if safe savings vehicles have relatively low marginal products, then a flight to safety will drive a larger aggregate contraction.
Description
| Type of resource | text |
|---|---|
| Date created | July 28, 2021 |
Creators/Contributors
| Author | Basu, Susanto |
|---|---|
| Author | Candian, Giacomo |
| Author | Chahrour, Ryan |
| Author | Valchev, Rosen |
| Organizer of meeting | Judd, Kenneth |
| Organizer of meeting | Pohl, Walter |
| Organizer of meeting | Schmedders, Karl |
| Organizer of meeting | Wilms, Ole |
Subjects
| Subject | risk premia |
|---|---|
| Subject | uncertainty |
| Subject | business cycles |
| Genre | Text |
| Genre | Working paper |
| Genre | Grey literature |
Bibliographic information
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- Use and reproduction
- User agrees that, where applicable, content will not be used to identify or to otherwise infringe the privacy or confidentiality rights of individuals. Content distributed via the Stanford Digital Repository may be subject to additional license and use restrictions applied by the depositor.
- License
- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Basu, S., Candian, G., Chahrour, R., and Valchev, R. (2022). Risky Business Cycles. Stanford Digital Repository. Available at https://purl.stanford.edu/xn149yw9340
Collection
SITE Conference 2021
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