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Disaster Risk in a New Keynesian Model
Marlène Isoré - Urszula Szczerbowicz
eBook Edition: 2013
This paper incorporates a small and time-varying “disaster risk” à la Gourio (2012) in a New Keynesian model. A change in the probability of disaster may affect macroeconomic quantities and asset prices. In particular, a higher risk is sufficient to generate a recession without effective occurrence of the disaster. By accounting for monopolistic competition, price stickiness, and a Taylor-type rule, this paper provides a baseline framework of the dynamic interactions between the macroeconomic effects of rare events and nominal rigidity, particularly suitable for further analysis of monetary policy. We also set up our next research agenda aimed at assessing the desirability of several policy measures in case of a variation in the probability of rare events.(From Author)

eBook Contents

Highlights and Abstract - Points clefs et résumé - Introduction - Model - Equilibrium - Impulse responses of the macroeconomic variables - Further research - Conclusion - References - Appendix - Mathematical Appendix

eBook License: Copyrighted (Personal Use Only by downloading from CEPII)

Free PDF eBook - 614 Kb - 45 Pages