Risky Business Cycles

Susanto Basu, Giacomo Candian, Ryan Chahrour and Rosen Valchev

No 1029, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We identify a shock that explains the bulk of fluctuations in equity risk premia, and show that the shock also explains a large fraction of the business-cycle comovements of output, consumption, employment, and investment. Recessions induced by the shock are associated with reallocation away from full-time permanent positions, towards part-time and flexible contract workers. A real model with labor market frictions and fluctuations in risk appetite can explain all of these facts, both qualitatively and quantitatively. The size of risk-driven fluctuations depends on the relationship between the riskiness and productivity of different stores of value: if safe savings vehicles have relatively low marginal products, then a flight to safety will drive a larger aggregate contraction.

Keywords: Business Cycles; Risk Premia; Uncertainty (search for similar items in EconPapers)
JEL-codes: E24 E32 (search for similar items in EconPapers)
Date: 2021-04-07, Revised 2024-09-17
New Economics Papers: this item is included in nep-cwa, nep-dge, nep-fdg, nep-mac and nep-ore
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://fmwww.bc.edu/EC-P/wp1029.pdf main text (application/pdf)

Related works:
Working Paper: Risky Business Cycles (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:1029

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F Baum ().