Seminario "Risk Premium Shocks Can Create Inefficient Recessions"

Miércoles 5/8, 17h

Presentado por Sebastián Di Tella
"Risk Premium Shocks Can Create Inefficient Recessions"
Jointly written with Bob Hall


We develop an equilibrium theory of business cycles driven by spikes in risk premiums that depress business demand for capital and labor. Aggregate shocks increase firms’ uninsurable idiosyncratic risk and raise risk premiums. We show that risk shocks can create quantitatively realistic recessions, with contractions in employment, consumption, and investment. Business cycles are inefficient—output and employment fall too much during recessions, compared to the constrained-efficient allocation, and consumption should rise. Optimal policy involves stimulating employment and consumption during recessions.

Sebastián Di Tella

Ph.D. in Economics, MIT. Sebastian is an Associate Professor of Economics at the Stanford Graduate School of Business, where he teaches Macroeconomics in the MBA program. His research is in macroeconomic theory covering a range of topics, including business cycles, monetary policy, financial crises, and financial regulation.

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Lugar: Online | Zoom Meeting
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