Risk aversion as a technology factor in the production function
We incorporate risk aversion into the technology component of the production function. In a traditional theoretic framework, we show that an increase in risk aversion increases unemployment and reduces potential output. Our out-of-sample forecasting experiments suggest that while interest rates impact the economy through the demand-side. However, an interest rate spread (TED) is used as a measure of risk aversion and is shown to impact output through the economy's supply-side.
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Volume (Year): 21 (2011)
Issue (Month): 18 ()
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