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Stochastic Growth and Factor Income Risk

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  • Clemens Christiane

    (University of Hamburg, Hamburg, Germany)

Abstract

This paper examines the effects of aggregate factor income risk in a tractable version of the stochastic Romer endogenous growth model. Labor supply is endogenous. The presence of labor income risk unambiguously increases savings and growth due to precautionary motives. Households not only underaccumulate but also work less along the balanced growth path of the competitive economy when compared with the Pareto-efficient allocation. The paper also discusses distributive disturbances for the case of inelastic labor supply. Here, growth effects are negative for empirically plausible correlations of the underlying shocks.

Suggested Citation

  • Clemens Christiane, 2009. "Stochastic Growth and Factor Income Risk," German Economic Review, De Gruyter, vol. 10(4), pages 422-447, December.
    • Handle: RePEc:bpj:germec:v:10:y:2009:i:4:p:422-447
    DOI: 10.1111/j.1468-0475.2009.00489.x
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    Cited by:

    1. Maik Heinemann & Alexander Wulff, 2015. "Idiosyncratic Risk, Borrowing Constraints and Financial Integration - A Discussion of Ambiguous Results," Working Papers 2015019, Berlin Doctoral Program in Economics and Management Science (BDPEMS).
    2. Wulff, Alexander & Heinemann, Maik, 2015. "Idiosyncratic Risk, Borrowing Constraints and Financial Integration - A Discussion of Ambiguous Results," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113165, Verein für Socialpolitik / German Economic Association.
    3. Bjarne S. Jensen, 2009. "Dynamic Extensions of the Solow Growth Model (1956): Editorial," German Economic Review, Verein für Socialpolitik, vol. 10(4), pages 378-383, November.
    4. Clemens, Christiane & Heinemann, Maik, 2015. "Endogenous growth and wealth inequality under incomplete markets and idiosyncratic risk," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 300-317.

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