Risk Aversion, Private Information and Real Fluctuations
| dc.contributor.advisor | Shea, John | en_US |
| dc.contributor.author | Pardo, Cristian | en_US |
| dc.contributor.department | Economics | en_US |
| dc.contributor.publisher | Digital Repository at the University of Maryland | en_US |
| dc.contributor.publisher | University of Maryland (College Park, Md.) | en_US |
| dc.date.accessioned | 2005-10-11T10:17:07Z | |
| dc.date.available | 2005-10-11T10:17:07Z | |
| dc.date.issued | 2005-07-29 | en_US |
| dc.description.abstract | In this dissertation, I further explore the role of the entrepreneurial sector in creating frictions in the economy. I examine the combined effect of private information and entrepreneurial risk aversion on the dynamics of a general equilibrium macroeconomic model. I analyze the impact of these frictions both at the micro level, in terms of the optimal contract between lenders and borrowers, and at the aggregate level within the context of a dynamic stochastic general equilibrium model. This analysis uses a model similar to Bernanke, Gertler and Gilchrist (1999), in which the entrepreneur benefits from private information. Allowing for risk aversion among entrepreneurs modifies the optimal contract by introducing insurance and a risk premium that risk-averse entrepreneurs demand due to the stochastic nature of their investment returns: the private equity premium. This premium, in general equilibrium, may become a mechanism that magnifies and propagates the effects of shocks over time. The model predicts that economies with a relatively larger privately-held sector, all else equal, should be more volatile than economies with a relatively more important corporate sector. I first examine a closed-economy framework, which isolates the role of the private equity premium as a mechanism that magnifies and propagates shocks over time. I then consider a small open economy and examine the role of exchange rates in affecting the private equity premium and the model's dynamics. I find that the exchange rate helps alleviate the propagating feature of the private equity premium. I also execute an exchange rate regime comparison where I show that the greater volatility associated with flexible exchange rate regimes adversely impacts the private equity premium and the supply of capital, amplifying the output response to shocks. I find that fixed exchange rate regimes could be preferable under less restrictive conditions than those commonly found in the literature. | en_US |
| dc.format.extent | 588174 bytes | |
| dc.format.mimetype | application/pdf | |
| dc.identifier.uri | http://hdl.handle.net/1903/2904 | |
| dc.language.iso | en_US | |
| dc.subject.pqcontrolled | Economics, General | en_US |
| dc.subject.pquncontrolled | Asymmetric and Private Information | en_US |
| dc.subject.pquncontrolled | Business Fluctuations | en_US |
| dc.subject.pquncontrolled | Risk Aversion | en_US |
| dc.subject.pquncontrolled | Financial Frictions | en_US |
| dc.subject.pquncontrolled | International Finance | en_US |
| dc.subject.pquncontrolled | Exchange Rate Regimes | en_US |
| dc.title | Risk Aversion, Private Information and Real Fluctuations | en_US |
| dc.type | Dissertation | en_US |
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