Economics, Econometrics and Finance
4 years ago

Reduced financial risk boosts economy's resilience to shocks, stabilizes asset prices

Review of Economic Dynamics
Risk aversion, uninsurable idiosyncratic risk, and the financial accelerator
Giacomo Candian, Mikhail Dmitriev

Paper Summary

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The model in the article shows that when businesses face risks they can't avoid, they become more careful with their money. This caution helps them handle financial problems better in the future. The study found that this cautious behavior can make the economy more stable when faced with financial shocks.