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8 years ago

Reducing individual risk boosts economy and lowers risk-free rates significantly.

RePEc: Research Papers in Economics
The Welfare Gains from Stabilization in a Stochastically Growing Economy with Idiosyncratic Shocks and Flexible Labor Supply
Marcelo Bianconi

Paper Summary

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The article shows that reducing individual risks along with overall economic risks can lead to significant welfare gains. By considering both types of risks, the study finds that stabilizing the economy can have important benefits. This can also impact asset pricing and lower the risk-free rate, encouraging people to save more. The results depend on how much people fear risks and how flexible the job market is. The study emphasizes the balance between analyzing risks on growth and welfare, and on asset prices, all within a unified framework.