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Housing and relative risk aversion

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  • Zanetti, Francesco

Abstract

This paper derives closed-form and numerical solutions for relative risk aversion in a standard consumption-based model enriched with housing. The presence of housing enables the household to hedge against unexpected shocks and may decrease relative risk aversion. In addition, housing may generate state-dependent, time-varying risk aversion.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 123 (2014)
Issue (Month): 1 ()
Pages: 23-25

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Handle: RePEc:eee:ecolet:v:123:y:2014:i:1:p:23-25

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Relative risk aversion; Time-varying risk aversion; Housing;

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  1. Sanford J. Grossman & Guy Laroque, 1987. "Asset Pricing and Optimal Portfolio Choice in the Presence of Illiquid Durable Consumption Goods," NBER Working Papers 2369, National Bureau of Economic Research, Inc.
  2. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2013. "Time Varying Risk Aversion," CEPR Discussion Papers 9589, C.E.P.R. Discussion Papers.
  3. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  4. Pedro Silos, 2005. "Housing, portfolio choice, and the macroeconomy," Working Paper 2005-21, Federal Reserve Bank of Atlanta.
  5. Epstein, Larry G & Zin, Stanley E, 1991. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 263-86, April.
  6. Matteo Iacoviello & Marina Pavan, 2011. "Housing and debt over the life cycle and over the business cycle," International Finance Discussion Papers 1032, Board of Governors of the Federal Reserve System (U.S.).
  7. Marjorie Flavin & Shinobu Nakagawa, 2008. "A Model of Housing in the Presence of Adjustment Costs: A Structural Interpretation of Habit Persistence," American Economic Review, American Economic Association, vol. 98(1), pages 474-95, March.
  8. Margarita Rubio, 2011. "Fixed‐ and Variable‐Rate Mortgages, Business Cycles, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(4), pages 657-688, 06.
  9. Eric T. Swanson, 2012. "Risk Aversion and the Labor Margin in Dynamic Equilibrium Models," American Economic Review, American Economic Association, vol. 102(4), pages 1663-91, June.
  10. Markus K. Brunnermeier & Stefan Nagel, 2008. "Do Wealth Fluctuations Generate Time-Varying Risk Aversion? Micro-evidence on Individuals," American Economic Review, American Economic Association, vol. 98(3), pages 713-36, June.
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