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Jel Classification:D80 

Working Paper
Risk Aversion at the Country Level
In this paper we provide estimates of the coefficient of relative risk aversion for 80 countries using data on self-reports of personal well-being from the Gallup World Poll. For most countries we cannot reject the null hypothesis that the coefficient of relative risk aversion equals 1. We conclude that our result supports the use of the log utility function in numerical simulations.
AUTHORS: Gandelman, Nestor; Hernandez-Murillo, Ruben
DATE: 2014-02-01

Working Paper
Insurance and Inequality with Persistent Private Information
We study optimal insurance contracts for an agent with Markovian private information. Our main results characterize the implications of constrained efficiency for long-run welfare and inequality. Under minimal technical conditions, there is Absolute Immiseration: in the long run, the agent?s consumption and utility converge to their lower bounds. When types are persistent and utility is unbounded below, there is Relative Immiseration: low-type agents are immiserated at a faster rate than high-type agents, and ?pathwise welfare inequality? grows without bound. These results extend and substantially generalize the hallmark findings from the classic literature with iid types, suggesting that the underlying forces are robust to a broad class of private information processes. The proofs rely on novel recursive techniques and martingale arguments. When the agent has CARA utility, we also analytically and numerically characterize the short-run properties of the optimal contract. Persistence gives rise to qualitatively novel short-run dynamics and allocative distortions (or ?wedges?) and, quantitatively, induces less efficient risk-sharing. We compare properties of the wedges to their counterparts in the dynamic taxation literature.
AUTHORS: Bloedel, Alex; Krishna, R. Vijay; Leukhina, Oksana
DATE: 2018-09-07

Journal Article
Risk Aversion at the Country Level
This article estimates the coefficient of relative risk aversion for 75 countries using data on self-reports of personal well-being from the 2006 Gallup World Poll. The analysis suggests that the coefficient of relative risk aversion varies closely around 1, which corresponds to a logarithmic utility function. The authors conclude that their results support the use of the log utility function in numerical simulations of economic models.
AUTHORS: Gandelman, Nestor; Hernandez-Murillo, Ruben
DATE: 2015

Working Paper
Inflation targeting and the anchoring of inflation expectations: cross-country evidence from consensus forecasts
Using survey data of inflation expectations across a 36 developed and developing countries, this paper examines whether the adoption of inflation targeting has helped to anchor inflation expectations. We examine the response of inflation expectations following a shock to inflation, inflation expectations, and oil prices. For the 13 countries that adopted inflation targeting midway through the time period used in this study, there is a significant difference in the responses between the earlier and the later subperiods. A shock leads to a positive, significant, and persistent increase inflation expectations in the earlier, pre-targeting subperiod, but the same response is much less significant and persistent in the later, posttargeting subperiod. For the control group of 23 countries that did not adopt inflation targeting during this time period, there is no difference between responses in the earlier and the later sub-periods.
AUTHORS: Presno, Ignacio; Davis, J. Scott
DATE: 2014-05-13

Working Paper
Global Commodity Prices and Global Stock Volatility Shocks: Effects across Countries
This paper investigates the time-varying dynamics of global stock volatility, commodity prices, and domestic output and consumer prices. The main empirical findings of this paper are: (i) stock volatility and commodity price shocks impact each other and the economy in a gradual and endogenous adjustment process; (ii) the impact of a commodity price shock on global stock volatility is far greater during the global financial crisis than at other times; (iii) the effects of global stock volatility on US output are amplified by the endogenous commodity price responses; (iv) in the long run, shocks to commodity prices (stock market volatility) account for 11.9% (6.6%) and 25.1% (11.6%) of the variation in US output and consumer prices; (v) the effects of global stock volatility shocks on the economy are heterogeneous across nations and relatively larger in the developed countries.
AUTHORS: Vespignani, Joaquin L.; Kang, Wensheng; Ratti, Ronald A.
DATE: 2017-04-01

Working Paper
The Impact of Global Uncertainty on the Global Economy, and Large Developed and Developing Economies
Global uncertainty shocks are associated with a sharp decline in global inflation, global growth and in the global interest rate. Over 1981 to 2014 global financial uncertainty forecasts 18.26% and 14.95% of the variation in global growth and global inflation respectively. Global uncertainty shocks have more protracted, statistically significant and substantial effects on global growth, inflation and interest rate than U.S. uncertainty shocks. U.S. uncertainty lags global uncertainty by one month. When controlling for domestic uncertainty, the decline in output following a rise in global uncertainty is statistically significant in each country, with the exception of the decline for China. The effects for the U.S. and for China are also relatively small. For most economies, a positive shock to global uncertainty has a depressing effect on prices and official interest rates. Exceptions are Brazil, Mexico and Russia, economies with large capital outflows during financial crises. Decomposition of global uncertainty shocks shows that global financial uncertainty shocks are more important than non-financial shocks.
AUTHORS: Vespignani, Joaquin L.; Kang, Wensheng; Ratti, Ronald A.
DATE: 2017-01-01

Working Paper
Asymmetric firm dynamics under rational inattention
We study the link between business failures, markups and business cycle asymmetry in the U.S. economy with a model of optimal firm exit under rational inattention. We show that the model's predictions of lagged, counter-cyclical and positively skewed markups together with counter-cyclical exit rates are consistent with the empirical evidence. Moreover, our model uncovers a new mechanism that links information processing with the business cycle. It predicts counter-cyclical attention to economic conditions consistent with survey evidence.
AUTHORS: Tutino, Antonella; Cheremukhin, Anton A.
DATE: 2014-10-01

Working Paper
Uncertainty and Labor Market Fluctuations
We investigate how a macroeconomic uncertainty shock affects the labor market. We focus on the uncertainty transmission mechanism, for which we employ a set of worker flow indicators in addition to labor stock variables. We incorporate common factors from such indicators into a framework that can simultaneously estimate historical macroeconomic uncertainty and its impacts on the macroeconomy and labor market. We find firms defer hiring as the real option value of waiting increases. Moreover, significantly more workers are laid off while voluntary quits drop, suggesting other mechanisms such as the aggregate demand channel play a crucial role.
AUTHORS: Jo, Soojin; Lee, Justin J.
DATE: 2019-07-02

Working Paper
The Economic Effects of Trade Policy Uncertainty
We study the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. We construct three measures of TPU based on newspaper coverage, firms' earnings conference calls, and aggregate data on tari rates. We document that increases in TPU reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms' export participation decisions. In the model as in the data, news and increased uncertainty about higher future tariffs reduce investment and activity.
AUTHORS: Caldara, Dario; Iacoviello, Matteo; Molligo, Patrick; Prestipino, Andrea; Raffo, Andrea
DATE: 2019-09

Working Paper
Measuring Geopolitical Risk
We present a monthly indicator of geopolitical risk based on a tally of newspaper articles covering geopolitical tensions, and examine its evolution and effects since 1985. The geopolitical risk (GPR) index spikes around the Gulf War, after 9/11, during the 2003 Iraq invasion, during the 2014 Russia-Ukraine crisis, and after the Paris terrorist attacks. High geopolitical risk leads to a decline in real activity, lower stock returns, and movements in capital flows away from emerging economies and towards advanced economies. When we decompose the index into threats and acts components, the adverse effects of geopolitical risk are mostly driven by the threat of adverse geopolitical events. Extending our index back to 1900, geopolitical risk rose dramatically during the World War I and World War II, was elevated in the early 1980s, and has drifted upward since the beginning of the 21st century.
AUTHORS: Caldara, Dario; Iacoviello, Matteo
DATE: 2018-02-02

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