Micro Shocks and Aggregate Risk

Boyan Jovanovic ()

The Quarterly Journal of Economics, 1987, vol. 102, issue 2, 395-409

Abstract: The paper presents a "micro" shock explanation of aggregate risk. Shocks are independent over agents, and equilibria are always unique. It is shown that any amount of aggregate risk can be generated by games in which shocks to players are independent. Explicit examples are given, some of which elaborate on examples in the literature. Implications are drawn for factor-analytic methods of extracting aggregate shocks.

Date: 1987
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