Disaster Risk in a New Keynesian Model
Marlène Isoré () and
Urszula Szczerbowicz ()
Working Papers from CEPII research center
This paper incorporates a small and time-varying “disaster risk” à la Gourio (2012) in a New Keynesian model. A change in the probability of disaster may affect macroeconomic quantities and asset prices. In particular, a higher risk is sufficient to generate a recession without effective occurrence of the disaster. By accounting for monopolistic competition, price stickiness, and a Taylor-type rule, this paper provides a baseline framework of the dynamic interactions between the macroeconomic effects of rare events and nominal rigidity, particularly suitable for further analysis of monetary policy. We also set up our next research agenda aimed at assessing the desirability of several policy measures in case of a variation in the probability of rare events.
Keywords: Disaster risk; rare events; DSGE models; business cycles (search for similar items in EconPapers)
JEL-codes: E17 E20 E32 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:cii:cepidt:2013-12
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