We develop a model of political cycles driven by time-varying risk aversion. Heterogeneous agents make two choices: whether to work in the public or private sector and which of two political parties to vote for. The model implies that when risk aversion is high, agents are more likely to elect the party promising more fiscal redistribution.
Markets, Finance, Risk, and Uncertainty
Imagine you are lying in bed at 6:30 in the morning and you hear the newspaper land at your front door. You get up and look at the front page and see the headline: “Bank Run Today, see page 2.”
A recent wave of research has demonstrated the existence of generic Early Warning Signals (EWS’s) that help predict a large class of abrupt changes in the state of ecological systems -- e.g. “tipping points.” Examples range from experimental laboratory systems of living organisms at tiny scales such as microbes up to ecosystems at the scale of lakes, rangelands, marine systems, or coral reefs.
The summer camp went far beyond my expectations . . .
For most people, housing is the largest routine expense they face and their most valuable asset. As a source of both wealth and household debt, housing markets influence not just individual consumption and savings but employment and consumer demand, with ripple effects all across the broader economy.
Traditionally, scholars have approached the analysis of financial institutions and products from the perspective of academic finance, focusing on asset pricing, valuation, capitalization ratios, and the like.
There is plentiful and growing evidence that political uncertainty stemming from elections or doubt about the direction of future policy has economic repercussions. This conference highlighted new research that explored the impact of policy uncertainty and the mechanisms by which it takes an economic toll.
Monetary policy can be a good tool to help the economy rebound from shocks. By lowering interest rates, the Federal Reserve can boost investment and spending to stimulate growth, which pushes upward on prices and employment.
Here’s a riddle: When does a country extending favorable tariffs effectively pay the costs of a trade war without actually being in a trade war?
Central banks can’t solve all our economic problems and should maintain a narrow scope, focusing on what the tools of monetary policy can do well, according to Charles Plosser, former president of the Federal Reserve Bank of Philadelphia.