Loss aversion in aggregate macroeconomic time series
Abstract
Prospect theory has been the focus of increasing attention in many fields of economics. However, it has scarcely been addressed in macroeconomic growth models--neither on theoretical nor on empirical grounds. In this paper we use prospect theory in a stochastic optimal growth model. Thereafter, the focus lies on linking the Euler equation obtained from a prospect theory growth model of this kind to real macroeconomic data. We will use generalized method of moments (GMM) estimation to test the implications of such a non-linear prospect utility Euler equation. Our results indicate that loss aversion can be traced in aggregate macroeconomic time series.Download Info
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Bibliographic Info
Article provided by Elsevier in its journal European Economic Review.
Volume (Year): 52 (2008)
Issue (Month): 7 (October)
Pages: 1140-1159
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Web page: http://www.elsevier.com/locate/eer
Related research
Keywords: Ramsey growth model Loss aversion Prospect theory GMM;Other versions of this item:
- Rina Rosenblatt-Wisch, 2006. "Loss Aversion in Aggregate Macroeconomic Time Series," Working Papers 2007-06, Swiss National Bank.
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Edoardo GAFFEO & Ivan PETRELLA & Damjan PFAJFAR & Emiliano SANTORO, 2010.
"Reference-dependent preferences and the transmission of monetary policy,"
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- Foellmi, Reto & Rosenblatt-Wisch, Rina & Schenk-Hoppé, Klaus Reiner, 2011.
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