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dc.contributor.authorde Groot, Oliver
dc.contributor.authorRichter, Alexander W.
dc.contributor.authorThrockmorton, Nathaniel A.
dc.identifier.citationde Groot , O , Richter , A W & Throckmorton , N A 2018 , ' Uncertainty shocks in a model of effective demand : comment ' , Econometrica , vol. 86 , no. 4 , pp. 1513-1526 .
dc.identifier.otherPURE: 256266226
dc.identifier.otherPURE UUID: a17a6440-0256-4343-9e1a-4caf86ecfcaf
dc.identifier.otherScopus: 85054306710
dc.identifier.otherWOS: 000440548700012
dc.description.abstractBasu and Bundick, 2017 showed an intertemporal preference volatility shock has meaningful effects on real activity in a New Keynesian model with Epstein and Zin, 1991 preferences. We show that when the distributional weights on current and future utility in the Epstein–Zin time aggregator do not sum to 1, there is an asymptote in the responses to such a shock with unit intertemporal elasticity of substitution. In the Basu–Bundick model, the intertemporal elasticity of substitution is set near unity and the preference shock only hits current utility, so the sum of the weights differs from 1. We show that when we restrict the weights to sum to 1, the asymptote disappears and preference volatility shocks no longer have large effects. We examine several different calibrations and preferences as potential resolutions with varying degrees of success.
dc.rightsCopyright © 2018 The Econometric Society This work is made available online in accordance with the publisher’s policies. This is the author created, accepted version manuscript following peer review and may differ slightly from the final published version. The final published version of this work is available at
dc.subjectEconomic activityen
dc.subjectEpstein–Zin preferencesen
dc.subjectStochastic volatilityen
dc.subjectHB Economic Theoryen
dc.subjectEconomics and Econometricsen
dc.titleUncertainty shocks in a model of effective demand : commenten
dc.typeJournal articleen
dc.contributor.institutionUniversity of St Andrews.School of Economics and Financeen
dc.description.statusPeer revieweden

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