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- doi: 10.1257/mac.5.4.68
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Mots-clés
decreasing relative risk aversion; reference consumption; business cycles; Japan's lost decadeSujets proches
Loathing Disrelish Disgust Distaste Repugnance Antipathy Abhorrence Dislike Investors Shareholders Financiers InvestorsCiter ce document
K. Benhima et al., « Safety Traps », Serveur académique Lausannois, ID : 10.1257/mac.5.4.68
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Résumé
Fear of risk provides a rationale for protracted economic downturns. We develop a real business cycle model where investors with decreasing relative risk aversion choose between a risky and a safe technology that exhibit decreasing returns. Because of a feedback effect from the interest rate to risk aversion, two equilibria can emerge: a standard equilibrium and a "safe" one in which investors invest in safer assets. We refer to the dynamics of this second equilibrium as a safety trap because it is self-reinforcing as investors accumulate more wealth and show it to be consistent with Japan's lost decade.