Replication data for: Welfare Cost of Business Cycles with Idiosyncratic Consumption Risk and a Preference for Robustness

Principal Investigator(s): View help for Principal Investigator(s) Martin Ellison; Thomas J. Sargent

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Ellison_Sargent_AEJ			10/12/2019 07:23:PM
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Project Citation:

Ellison, Martin, and Sargent, Thomas J. Replication data for: Welfare Cost of Business Cycles with Idiosyncratic Consumption Risk and a Preference for Robustness. Nashville, TN: American Economic Association [publisher], 2015. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12. https://doi.org/10.3886/E114065V1

Project Description

Summary: The welfare cost of random consumption fluctuations is known from De Santis (2007) to be increasing in the level of uninsured idiosyncratic consumption risk. It is known from Barillas, Hansen, and Sargent (2009) to increase if agents care about robustness to model misspecification. We calculate the cost of business cycles in an economy where agents face idiosyncratic consumption risk and fear model misspecification, finding that idiosyncratic risk has a greater impact on the cost of business cycles if agents already fear model misspecification. Correspondingly, endowing agents with fears about misspecification is more costly when there is already idiosyncratic risk. (JEL D81, E13, E21, E32)

Scope of Project

JEL Classification:
      D81 Criteria for Decision-Making under Risk and Uncertainty
      E13 General Aggregative Models: Neoclassical
      E21 Macroeconomics: Consumption; Saving; Wealth
      E32 Business Fluctuations; Cycles

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V1 [2019-10-12]

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