Findings from Federal Reserve Board Broaden Understanding of Macroeconomics (Risk Shocks, Risk Management, and Investment): Economics – Macroeconomics

2021 DEC 20 (NewsRx) -- By a News Reporter-Staff News Editor at Economics Daily Report -- A new study on Economics - Macroeconomics is now available. According to news originating from Washington, District of Columbia, by NewsRx editors, the research stated, “This paper studies the macroeconomic effects of shocks to idiosyncratic business risk in an economy with endogenously incomplete markets. I develop a model in which firms face idiosyncratic risk and obtain insurance from intermediaries through contracts akin to credit lines.”

Our news journalists obtained a quote from the research from Federal Reserve Board, “Insurance is imperfect due to limited commitment in financial contracts. Although steady-state capital is higher than if firms were constrained to issue only standard equity, a rise in uncertainty about idiosyncratic business outcomes leads to an endogenous reduction in risk sharing. This deterioration in risk sharing results from a general-equilibrium shortage of pledgeable assets and implies that the economy’s response to an increase in idiosyncratic business risk can be amplified by financial contracting rather than dampened.”

According to the news editors, the research concluded: “In a parametrized version of the model, a rise in idiosyncratic business risk generates a large increase in uncertainty about aggregate investment.”

This research has been peer-reviewed.

For more information on this research see: Risk Shocks, Risk Management, and Investment. Macroeconomic Dynamics, 2021;25(7):1779-1809. Macroeconomic Dynamics can be contacted at: Cambridge Univ Press, 32 Avenue Of The Americas, New York, NY 10013-2473, USA. (Cambridge University Press - www.cambridge.org; Macroeconomic Dynamics - http://journals.cambridge.org/action/displayJournal?jid=MDY)

The news correspondents report that additional information may be obtained from Jonathan Goldberg, Federal Reserve Board, Mailstop K1-164, 20TH St & Constitut Ave NW, Washington, DC 20551, United States.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1017/s1365100519000865. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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