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UID:25fbc8e9e2a6f5e5e7a56fb237993f55
CATEGORIES:Seminars
CREATED:20190502T150212
SUMMARY:Lunch Seminar: Guido Lorenzoni - Northwestern University
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:\n\nRisk Sharing Externalities joint with Luigi Bocola\nAbstract:\nMacroeco
 nomic models with a financial accelerator mechanism are built around two ma
 in ingredients: a collateral constraint and incomplete financial markets. T
 he first ingredient implies that shocks affecting the balance sheet of some
  agents affect their investment decisions, while the second ingredient guar
 antees that the same agents cannot hedge these shocks. A commonly held view
  in the literature is that both ingredients are necessary for the model to 
 produce amplified responses to aggregate shocks. In this paper we revisit t
 his view. In particular, we focus on a general equilibrium spillover, by wh
 ich a reduction of the net worth of financially constrained agents lowers i
 ncomes and consumption levels in the rest of economy. The presence of the s
 pillover makes hedging costly for the financially constrained agents and le
 ads to amplification even in presence of complete financial markets. Numeri
 cal simulations show that this force is quantitatively relevant, as under p
 lausible calibrations the competitive equilibrium with complete markets fea
 tures a similar degree of amplification as the one with incomplete markets.
  The same spillover also implies that the competitive equilibrium is constr
 ained inefficient and provides a rationale for financial regulation that re
 duces the exposure of financial institutions to aggregate risk.\n
DTSTAMP:20260404T231337Z
DTSTART:20190618T130000Z
DTEND:20190618T140000Z
SEQUENCE:0
TRANSP:OPAQUE
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