AMBIGUITY, LOW RISK-FREE RATES AND CONSUMPTION INEQUALITY

• 成果类型: Article
• 署名作者: Luo, Yulei; Nie, Jun; Young, Eric R.
• 署名单位: University of Hong Kong; Federal Reserve System - USA; Federal Reserve Bank - Kansas City; University of Virginia; Zhejiang University
• 刊物名称: ECONOMIC JOURNAL
• ISSN/ISSBN: 0013-0133
• DOI: 10.1093/ej/ueaa045
• 发表日期: 2020
• 页码: 2649-2679
• 关键词: intertemporal substitution; idiosyncratic risk; permanent-income; asset returns; welfare cost; DYNAMICS; GROWTH; WEALTH; POLICY

摘要

Macroeconomists failed to predict the Great Recession, suggesting that the existing macroeconomic models may have been misspecified. Bearing in mind this potential misspecification or 'model uncertainty', how do agents' optimal decisions change? Furthermore, how large are the welfare costs of model misspecification? To shed light on these questions, we develop a tractable continuous-time general equilibrium model to show that a fear of model misspecification reduces both the equilibrium interest rate and the relative inequality of consumption to income, making the model's predictions closer to the data. Our quantitative analysis shows that the welfare costs of model uncertainty are sizable.