Structural Breaks in an Endogenous Growth Model

Timothy Cogley; Boyan Jovanovic

doi:10.1093/restud/rdab045

Structural Breaks in an Endogenous Growth Model

Timothy Cogley, Boyan Jovanovic

Research output: Contribution to journal › Article › peer-review

Abstract

We study the effects of parameter uncertainty prompted by structural breaks. In our model, agents respond differently to uncertainty prompted by regime shifts in shock processes than they react to comparable perceived increases in shock volatility. The magnitude of the response to an increase in uncertainty about TFP associated with a structural break is greater than that of a response to a comparable perceived rise in volatility. This is because lifetime utility varies more when shocks shift beliefs and perceived wealth.

Original language	English (US)
Pages (from-to)	666-694
Number of pages	29
Journal	Review of Economic Studies
Volume	89
Issue number	2
DOIs	https://doi.org/10.1093/restud/rdab045
State	Published - Mar 1 2022

Keywords

General equilibrium
Learning
Structural breaks
Uncertainty shocks
Volatility shocks

ASJC Scopus subject areas

Economics and Econometrics

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10.1093/restud/rdab045

Cite this

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abstract = "We study the effects of parameter uncertainty prompted by structural breaks. In our model, agents respond differently to uncertainty prompted by regime shifts in shock processes than they react to comparable perceived increases in shock volatility. The magnitude of the response to an increase in uncertainty about TFP associated with a structural break is greater than that of a response to a comparable perceived rise in volatility. This is because lifetime utility varies more when shocks shift beliefs and perceived wealth. ",

keywords = "General equilibrium, Learning, Structural breaks, Uncertainty shocks, Volatility shocks",

author = "Timothy Cogley and Boyan Jovanovic",

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N2 - We study the effects of parameter uncertainty prompted by structural breaks. In our model, agents respond differently to uncertainty prompted by regime shifts in shock processes than they react to comparable perceived increases in shock volatility. The magnitude of the response to an increase in uncertainty about TFP associated with a structural break is greater than that of a response to a comparable perceived rise in volatility. This is because lifetime utility varies more when shocks shift beliefs and perceived wealth.

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KW - Volatility shocks

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Structural Breaks in an Endogenous Growth Model

Abstract

Keywords

ASJC Scopus subject areas

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