A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries

In this chapter, an asymmetric DSGE model is built in order to account for asymmetries in business cycles. One of the most important contributions of this work is the construction of a general utility function which nests loss aversion, risk aversion and habits formation by means of a smooth transit...

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Autor Principal: Gómez Muñoz, Wilman Arturo
Formato: Documento de trabajo (Working Paper)
Lenguaje:Inglés (English)
Publicado: Universidad del Rosario 2014
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Acceso en línea:http://repository.urosario.edu.co/handle/10336/10967
id ir-10336-10967
recordtype dspace
spelling ir-10336-109672019-09-19T12:37:01Z A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries Gómez Muñoz, Wilman Arturo Producción Ciclos económicos::Modelos Econométricos Teoría de la utilidad Riesgo (Economía)::Modelos Econométricos In this chapter, an asymmetric DSGE model is built in order to account for asymmetries in business cycles. One of the most important contributions of this work is the construction of a general utility function which nests loss aversion, risk aversion and habits formation by means of a smooth transition function. The main idea behind this asymmetric utility function is that under recession the agents over-smooth consumption and leisure choices in order to prevent a huge deviation of them from the reference level of the utility; while under boom, the agents simply smooth consumption and leisure, but trying to be as far as possible from the reference level of utility. The simulations of this model by means of Perturbations Method show that it is possible to reproduce asymmetrical business cycles where recession (on shock) are stronger than booms and booms are more long-lasting than recession. One additional and unexpected result is a downward stickiness displayed by real wages. As a consequence of this, there is a more persistent fall in employment in recession than in boom. Thus, the model reproduces not only asymmetrical business cycles but also real stickiness and hysteresis. 2014-04 2015-10-06T12:24:18Z info:eu-repo/semantics/workingPaper info:eu-repo/semantics/acceptedVersion http://repository.urosario.edu.co/handle/10336/10967 Universidad del Rosario, Facultad de Economía eng info:eu-repo/semantics/openAccess application/pdf Universidad del Rosario Facultad de Economía instname:Universidad del Rosario reponame:Repositorio Institucional EdocUR instname:Universidad del Rosario
institution EdocUR - Universidad del Rosario
collection DSpace
language Inglés (English)
topic Producción
Ciclos económicos::Modelos Econométricos
Teoría de la utilidad
Riesgo (Economía)::Modelos Econométricos
spellingShingle Producción
Ciclos económicos::Modelos Econométricos
Teoría de la utilidad
Riesgo (Economía)::Modelos Econométricos
Gómez Muñoz, Wilman Arturo
A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries
description In this chapter, an asymmetric DSGE model is built in order to account for asymmetries in business cycles. One of the most important contributions of this work is the construction of a general utility function which nests loss aversion, risk aversion and habits formation by means of a smooth transition function. The main idea behind this asymmetric utility function is that under recession the agents over-smooth consumption and leisure choices in order to prevent a huge deviation of them from the reference level of the utility; while under boom, the agents simply smooth consumption and leisure, but trying to be as far as possible from the reference level of utility. The simulations of this model by means of Perturbations Method show that it is possible to reproduce asymmetrical business cycles where recession (on shock) are stronger than booms and booms are more long-lasting than recession. One additional and unexpected result is a downward stickiness displayed by real wages. As a consequence of this, there is a more persistent fall in employment in recession than in boom. Thus, the model reproduces not only asymmetrical business cycles but also real stickiness and hysteresis.
format Documento de trabajo (Working Paper)
author Gómez Muñoz, Wilman Arturo
author_facet Gómez Muñoz, Wilman Arturo
author_sort Gómez Muñoz, Wilman Arturo
title A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries
title_short A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries
title_full A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries
title_fullStr A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries
title_full_unstemmed A DSGE model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries
title_sort dsge model with loss aversion in consumption and leisure: an explanation for business cycles asymmetries
publisher Universidad del Rosario
publishDate 2014
url http://repository.urosario.edu.co/handle/10336/10967
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score 11,489418