Risky Business Cycles
We isolate the main driver of equity risk premium fluctuations in the data, and show that this same shock also explains a large fraction of the business-cycle comovements of output, consumption, employment, and investment. Recessions associated with this shock are characterized by a reallocation away from full-time labor positions, and towards part-time and flexible contract workers. We explain the data using a novel real model where fluctuations in risk appetite lead to a shift from riskier to safer factors of production. Since safer factors carry lower marginal products – a form of real risk premium – this “flight-to-safety” in production input demand precipitates a broad macroeconomic contraction.
Date: 3 June 2025, 13:15
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room A
Speaker: Ryan Chahrour (Cornell University)
Organising department: Department of Economics
Part of: Macroeconomics Seminar
Booking required?: Not required
Audience: Members of the University only
Editor: Edward Clark