Dorofeenko, Victor and Lee, Gabriel and Salyer, Kevin and Strobel, Johannes (2020) Risk shocks with time-varying higher moments. STUDIES IN NONLINEAR DYNAMICS AND ECONOMETRICS, 24 (2): 20180028. ISSN 1081-1826, 1558-3708
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Within the context of a financial accelerator model, we model time-varying uncertainty (i.e. risk shocks) through the use of a mixture normal model with time variation in the weights applied to the underlying distributions characterizing entrepreneur productivity. Specifically, we model capital producers (i.e. the entrepreneurs) as either low-risk (a relatively small second moment of productivity) or high-risk (a relatively large second moment of productivity) and the fraction of both types is time-varying. We show that this modeling feature implies that the aggregate distribution of productivity shocks is non-normal and has time varying kurtosis and skewness; both of these features have important effects on equilibrium characteristics. In particular, after estimating the steady-state share and the change in the fraction of risky entrepreneurs, we show that a small change in the fraction of risky types can result in a large quantitative effect of a risk shock relative to standard models for both financial and real variables. Moreover, the bankruptcy rate and the risk premium in the economy are very sensitive to a change in the composition of entrepreneurs.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | UNCERTAINTY SHOCKS; AGENCY COSTS; NET WORTH; BUSINESS; FLUCTUATIONS; VOLATILITY; MODEL; bankruptcy rate; Bayesian analysis; DSGE models; mixture models; time-varying uncertainty |
| Subjects: | 300 Social sciences > 330 Economics |
| Divisions: | Business, Economics and Information Systems > Institut für Volkswirtschaftslehre und Ökonometrie > Lehrstuhl für Immobilienökonomie (Prof. Dr. Gabriel Lee) Business, Economics and Information Systems > Institut für Immobilienenwirtschaft / IRE|BS > Lehrstuhl für Immobilienökonomie (Prof. Dr. Gabriel Lee) |
| Depositing User: | Dr. Gernot Deinzer |
| Date Deposited: | 29 Mar 2021 06:54 |
| Last Modified: | 29 Mar 2021 06:54 |
| URI: | https://pred.uni-regensburg.de/id/eprint/44851 |
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