Disaster risk in a New Keynesian model

Maren Brede

No 2013-020, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: This paper develops a simple New Keynesian model incorporating a small time-varying probability that the economy is struck by a disaster in the future. The model's main prediction is that a small increase in the disaster probability causes a recession in the economy, speci cally due to limited saving opportunities inasmuch as the model abstracts from capital accumulation. By contrasting its ndings to the ones of a comparable real business cycle model, this paper evaluates how the disaster hypothesis has been used and modelled in the existing literature.

Keywords: time-varying risk; disasters; rare events; nominal rigidities (search for similar items in EconPapers)
JEL-codes: E21 E31 E32 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2013-020

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