{
  "title": "Recursive Utility, Endogenous Growth, and the Welfare Cost of Volatility",
  "publication": "IMF Working Papers, January 1, 2001",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/recursive-utility-endogenous-growth-and-the-welfare-cost-of-volatility-3967",
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  "summary": "This paper proposes a measure of the welfare cost of volatitliy derived from an endogenous growth model (AK) under uncertainty extended to the case of a recursive utility function which disentangles risk aversion from intertemporal elasticity of substitution.",
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    {
      "heading": "Summary",
      "content": "- This paper proposes a measure of the welfare cost of volatitliy derived from an endogenous growth model (AK) under uncertainty extended to the case of a recursive utility function which disentangles risk aversion from intertemporal elasticity of substitution.\n- The measure encompasses:\n  - a direct welfare cost of fluctuations, and\n  - a welfare cost due to the endogeneity of the consumption.\n- The total welfare cost of volatility increases with both the risk aversion and the intertemporal elasticity of substitution.\n- For plausible values of the agent's preference parameters, the cost of volatility may be greater than measures bases on an exogenous process for consumption."
    },
    {
      "heading": "Core findings and analytical contributions",
      "content": "- Introduces a welfare-cost measure within an AK endogenous growth framework under uncertainty, extended to recursive utility that separates risk aversion from intertemporal elasticity of substitution.\n- Identifies two components of welfare cost:\n  - direct cost from fluctuations, and\n  - cost arising because consumption is endogenous to the growth process.\n- Demonstrates that the total welfare cost of volatility is increasing in:\n  - risk aversion, and\n  - intertemporal elasticity of substitution.\n- Notes that when agent preference parameters take plausible values, the welfare cost of volatility can exceed welfare-cost measures derived assuming consumption follows an exogenous process.\n\n---\n\n Content in this bundle\n\n- Recursive Utility, Endogenous Growth, and the Welfare Cost of Volatility - WP/01/5\n  - Recursive Utility, Endogenous Growth, and the Welfare Cost of Volatility - WP/01/5 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Recursive Utility, Endogenous Growth, and the Welfare Cost of Volatility - WP/01/5 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/recursive-utility-endogenous-growth-and-the-welfare-cost-of-volatility-3967"
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    "Authors: Aude Pommeret, Anne Epaulard",
    "Published: January 1, 2001",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451842180.001",
    "This paper proposes a measure of the welfare cost of volatitliy derived from an endogenous growth model (AK) under uncertainty extended to the case of a recursive utility function which disentangles risk aversion from intertemporal elasticity of substitution.",
    "The measure encompasses:",
    "The total welfare cost of volatility increases with both the risk aversion and the intertemporal elasticity of substitution.",
    "For plausible values of the agent's preference parameters, the cost of volatility may be greater than measures bases on an exogenous process for consumption.",
    "Introduces a welfare-cost measure within an AK endogenous growth framework under uncertainty, extended to recursive utility that separates risk aversion from intertemporal elasticity of substitution.",
    "Identifies two components of welfare cost:",
    "Demonstrates that the total welfare cost of volatility is increasing in:",
    "Notes that when agent preference parameters take plausible values, the welfare cost of volatility can exceed welfare-cost measures derived assuming consumption follows an exogenous process.",
    "**Recursive Utility, Endogenous Growth, and the Welfare Cost of Volatility - WP/01/5**"
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