IDEAS home Printed from https://ideas.repec.org/p/sce/scecf1/277.html
   My bibliography  Save this paper

IntertemporalSubstitution, Risk Aversion, and Economic Performance in a StocashticallyGrowing Open Economy

Author

Listed:
  • Stephen Turnovsky, University of Washington and Paola Giuliano, University of California-Berkeley

Abstract

Most intertemporal studies of risk are based on the constant relative risk aversion utility function. This has the property that the intertemporal elasticity of substitution and the coefficient of relative risk aversion are both consstant and inverses of each other. With the diversity of empirical evidence suggesting that this constraint may or may not be met, it is important that studies of risk and growth decouple these two parameters, which impinge on the equilibrium in distinct and in some respects conflicting ways. This paper provides both an analytical characterization as well as extensive numerical simulations of the euqilibrium in a stochastically growing small open economy under more general recursive preferences. The paper shows that errors committed by using the constant elasticity uility function rather than the more general recursive preferences, even for small violations of the compatibility condition within empirically plausible range of the parameter values can be both quantitatively and even qualitatively substantial.

Suggested Citation

  • Stephen Turnovsky, University of Washington and Paola Giuliano, University of California-Berkeley, 2001. "IntertemporalSubstitution, Risk Aversion, and Economic Performance in a StocashticallyGrowing Open Economy," Computing in Economics and Finance 2001 277, Society for Computational Economics.
  • Handle: RePEc:sce:scecf1:277
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Keywords

    stochastic growth; open economy; risk aversion; intertemporal substitution;

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sce:scecf1:277. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum). General contact details of provider: http://edirc.repec.org/data/sceeeea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.