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- W2137222714 abstract "This paper studies the policy implications of habits and cyclical changes in agents' appetite for risk-taking. To do so, it analyses the non-linear solution of a New Keynesian (NK) model, in which slow-moving habits help match the cyclical properties of risk-premia. Our findings suggest that the presence of habits and swings in risk appetite can materially affect policy prescriptions. As in Ljungqvist and Uhlig (2000), a counter-cyclical fiscal instrument can eliminate habit-related externalities. Alternatively, monetary policy can partially curb the associated overconsumption by responding to risk premia. Specifically, periods in which risk premia are elevated (compressed) merit a looser (tighter) policy stance. However, the associated welfare gains appear quantitatively small." @default.
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- W2137222714 date "2013-01-23" @default.
- W2137222714 modified "2023-09-25" @default.
- W2137222714 title "Policy design in a model with swings in risk appetite" @default.
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- W2137222714 doi "https://doi.org/10.1093/oep/gps050" @default.
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