Risk and ambiguity in models of business cycles

David Backus, Axelle Ferriere and Stanley Zin

Journal of Monetary Economics, 2015, vol. 69, issue C, 42-63

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.

Keywords: Uncertainty; Smooth ambiguity; Certainty equivalent; Recursive preferences; Pricing kernel; Asset returns; Learning (search for similar items in EconPapers)
JEL-codes: D81 E32 G12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Related works:
Working Paper: Risk and Ambiguity in Models of Business Cycles (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:69:y:2015:i:c:p:42-63

DOI: 10.1016/j.jmoneco.2014.12.005

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