Risk Aversion in the Euro area

Jonathan Benchimol (1, 2)

1 CES - Centre d'économie de la Sorbonne
2 Economics Department

We propose a New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model where a risk aversion shock enters a separable utility function. We analyze five periods, each one lasting twenty years, to follow over time the dynamics of several parameters (such as the risk aversion parameter), the Taylor rule coefficients and the role of this risk aversion shock on output and real money balances in the Eurozone. Our analysis suggests that risk aversion was a more important component of output and real money balance dynamics between 2006 and 2011 than it had been between 1971 and 2006, at least in the short run.

Keywords: Risk aversion; Output; Money; Euro area; New Keynesian DSGE models; Bayesian estimation

Domains: Humanities and Social Sciences; Economics and Finance; Humanities and Social Sciences; Methods and statistics

Jonathan Benchimol. Risk Aversion in the Euro area. 29th GdRE Annual International Symposium on Money, Banking and Finance, Jun 2012, Nantes, France. ⟨hal-00713669v2⟩