| 来源类型 | Discussion paper
|
| 规范类型 | 论文
|
| 来源ID | DP14627
|
| DP14627 A Model of Endogenous Risk Intolerance and LSAPs: Asset Prices and Aggregate Demand in a "Covid-19" Shock |
| Ricardo Caballero; Alp Simsek
|
| 发表日期 | 2020-04-16
|
| 出版年 | 2020
|
| 语种 | 英语
|
| 摘要 | In this paper we: (i) provide a model of the endogenous risk intolerance and severe asset price and aggregate demand contractions following an adverse real (non-financial) shock; and (ii) demonstrate the effectiveness of Large Scale Asset Purchases (LSAPs) in addressing these contractions. The key mechanism stems from heterogeneous risk tolerance: as a recessionary shock hits the economy and brings down asset prices, risk-tolerant agents' wealth share declines and their leverage rises endogenously. This reduces the market's risk tolerance and generates downward pressure on asset prices and aggregate demand. When monetary policy is unconstrained, it can offset the decline in risk tolerance with an interest rate cut that boosts the market's Sharpe ratio. However, if the interest rate policy is constrained, new contractionary feedbacks arise: recessionary shocks lead to further asset price and output drops, which feed the risk-off episode and trigger a downward loop. In this context, LSAPs improve asset prices and aggregate demand by transferring risk to the government's balance sheet, which reduces the market's required Sharpe ratio and reverses the contractionary feedbacks. Quantitatively, we show that aggregate shocks and LSAPs have large impacts on asset prices when the model is calibrated to fit the inelastic demand for aggregate assets uncovered in recent literature. We also show that heterogeneity in risk tolerance explains part of the demand inelasticity in normal times, and further reduces the elasticity after a recessionary shock. The Covid-19 shock and the large response by all major central banks provide a vivid illustration of the environment we seek to capture. |
| 主题 | Financial Economics
; Monetary Economics and Fluctuations
|
| 关键词 | Risk intolerance
Leverage
Asset price spirals
Aggregate supply and demand
Recessions
Conventional and unconventional monetary policy
Multiple equilibria
Lsaps
Asset demand (in)elasticity
Covid-19
|
| URL | https://cepr.org/publications/dp14627-6
|
| 来源智库 | Centre for Economic Policy Research (United Kingdom)
|
| 资源类型 | 智库出版物
|
| 条目标识符 | http://119.78.100.153/handle/2XGU8XDN/543537
|
推荐引用方式
GB/T 7714 |
Ricardo Caballero,Alp Simsek. DP14627 A Model of Endogenous Risk Intolerance and LSAPs: Asset Prices and Aggregate Demand in a "Covid-19" Shock. 2020.
|
除非特别说明，本系统中所有内容都受版权保护，并保留所有权利。
