Skip to main content

Please enter a keyword and click the arrow to search the site

Risk aversion and the response of the macroeconomy to uncertainty shocks



Publishing details

Social Sciences Research Network

Authors / Editors

Bretscher L;Hsu A;Tamoni A

Publication Year



The degree of risk aversion (RA) determines the impact of uncertainty shocks in DSGE models. Ceteris paribus, a higher coefficient of risk aversion leads to an amplification of macroeconomic responses to uncertainty shocks in standard New Keynesian models. Theoretically, we show that an economy with endogenously time-varying risk aversion can generate large responses to uncertainty shocks. Empirically, and consistent with model predictions, we show that RA exacerbates the impact of uncertainty shocks. In particular, heightened levels of RA during the 2008 crisis amplified the drop in output and investment by 21% and 16%, respectively, at the recession trough.


Risk Aversion; Uncertainty; Conditional IRF; Dynamic Economies


Social Sciences Research Network

Available on ECCH


Select up to 4 programmes to compare

Select one more to compare
subscribe_image_desktop 5949B9BFE33243D782D1C7A17E3345D0

Sign up to receive our latest news and business thinking direct to your inbox


Sign up to receive our latest course information and business thinking

Leave your details above if you would like to receive emails containing the latest thought leadership, invitations to events and news about courses that could enhance your career. If you would prefer not to receive our emails, you can still access the case study by clicking the button below. You can opt-out of receiving our emails at any time by visiting: or by unsubscribing through the link provided in our emails. View our Privacy Policy for more information on your rights.