Cyclical risk aversion, precautionary saving and monetary policy
AbstractThis paper analyses the conduct of monetary policy in an environment in which cyclical swings in risk appetite affect households’ propensity to save. It uses a New Keynesian model featuring external habit formation to show that taking note of precautionary saving motives justifies an accommodative policy bias in the face of persistent, adverse disturbances. Equally, policy should be more restrictive following positive shocks.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 418.
Length: 32 pages
Date of creation: 12 Apr 2011
Date of revision:
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More information through EDIRC
Precautionary saving; monetary policy; cyclical risk aversion; macro-finance; DSGE models.;
Other versions of this item:
- Bianca De Paoli & Pawel Zabczyk, 2013. "Cyclical Risk Aversion, Precautionary Saving, and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(1), pages 1-36, 02.
- Bianca De Paoli & Pawel Zabczyk, 2012. "Cyclical Risk Aversion, Precautionary Saving and Monetary Policy," CEP Discussion Papers dp1132, Centre for Economic Performance, LSE.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-23 (All new papers)
- NEP-CBA-2011-04-23 (Central Banking)
- NEP-DGE-2011-04-23 (Dynamic General Equilibrium)
- NEP-MAC-2011-04-23 (Macroeconomics)
- NEP-MON-2011-04-23 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Risk Aversion and the Natural Interest Rate
by Blog Author in Liberty Street Economics on 2014-07-16 11:00:00
- 'Risk Aversion and the Natural Interest Rate'
by Mark Thoma in Economist's View on 2014-07-16 08:21:30
- Michael Hatcher, 2013.
"The inflation risk premium on government debt in an overlapping generations model,"
2013_17, Business School - Economics, University of Glasgow.
- Hatcher, Michael, 2013. "The Inflation Risk Premium on Government Debt in an Overlapping Generations Model," SIRE Discussion Papers 2013-81, Scottish Institute for Research in Economics (SIRE).
- Andersson, Magnus & D’Agostino, Antonello & de Bondt, Gabe & Roma, Moreno, 2011. "The predictive content of sectoral stock prices: a US-euro area comparison," Working Paper Series 1343, European Central Bank.
- Hatcher, Michael, 2011. "Time-varying volatility, precautionary saving and monetary policy," Bank of England working papers 440, Bank of England.
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