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Data and code files for the paper "Ambiguity, Low Risk-Free Rates, and Consumption Inequality"

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  • Luo, Yulei (Faculty of Business and Economics, The University of Hong Kong, Hong Kong)
  • Nie, Jun (Research Department, Federal Reserve Bank of Kansas City)
  • Young, Eric R. (Department of Economics, University of Virginia, and Academy of Financial Research, Zhejiang University)
Publication Date
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  • Abstract

    Macroeconomists failed to predict the Great Recession, suggesting that the existing macroeconomic models may have been misspecified. Bearing in mind this potential misspecification, how do agents’ optimal decisions change? Furthermore, how large are the welfare costs of model misspecification? To shed light on these questions, we develop a tractable continuous time general equilibrium model to show that a fear of model misspecification reduces both the equilibrium interest rate and the relative inequality of consumption to income, making the model’s predictions closer to the data. Our quantitative analysis shows that the welfare costs of model uncertainty are sizable.

Update Metadata: 2020-03-05 | Issue Number: 4 | Registration Date: 2020-03-05

Luo, Yulei; Nie, Jun; Young, Eric R. (2020): Data and code files for the paper "Ambiguity, Low Risk-Free Rates, and Consumption Inequality". Version: V0. ICPSR - Interuniversity Consortium for Political and Social Research. Dataset.