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"This paper augments the neoclassical growth model to study the macroeconomic effects of idiosyncratic investment risk. The general equilibrium is solved in closed form under standard assumptions for preferences and technologies. A simple condition is identified for incomplete markets to result in both a lower interest rate and a lower capital stock in the steady state: the elasticity of intertemporal substitution must be higher than the income share of capital. For plausible calibrations of the model, the reduction in the steady-state levels of aggregate savings and income relative to complete markets is quantitatively significant. Finally, cyclical variation in private investment risks is shown to amplify the transitional dynamics"--National Bureau of Economic Research web site.
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Uninsured idiosyncratic investment risk and aggregate saving
2005, National Bureau of Economic Research
Electronic resource
in English
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Book Details
Published in
Cambridge, MA
Edition Notes
Also available in print.
Includes bibliographical references.
Title from PDF file as viewed on 3/18/2005.
System requirements: Adobe Acrobat Reader.
Mode of access: World Wide Web.
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