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Risk and Ambiguity in Models of Business Cycles

David Backus, Axelle Ferriere and Stanley Zin

No 20319, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We inject aggregate uncertainty - risk and ambiguity - into an otherwise standard business cycle model and describe its consequences. We find that increases in uncertainty generally reduce consumption, but they do not account, in this model, for either the magnitude or the persistence of the most recent recession. We speculate about extensions that might do better along one or both dimensions.

JEL-codes: D81 E32 G12 (search for similar items in EconPapers)
Date: 2014-07
New Economics Papers: this item is included in nep-dge, nep-mac and nep-upt
Note: AP EFG
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Citations: View citations in EconPapers (11)

Published as Backus, David & Ferriere, Axelle & Zin, Stanley, 2015. "Risk and ambiguity in models of business cycles," Journal of Monetary Economics, Elsevier, vol. 69(C), pages 42-63.

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