What is it about?

Does the representative household's risk aversion level increase money's role in the economy? Risk aversion is an important transmission channel of money's role in the overall economy. According to previous literature, money remains quasi-neutral when risk aversion levels correspond to normal times.

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Why is it important?

The paper presents and tests a model of the Eurozone economy to highlight the role of risk aversion and money on economic dynamics. It investigates the impact of money on output and how it depends on the degree of risk aversion in the economy. Overall, it contributes to our understanding of the Eurozone economy and the role of money and risk aversion in it.


Risk aversion influences the effect of monetary aggregates on the economy, and this key finding for policymakers is accepted and used in unconventional monetary policies worldwide.

Jonathan Benchimol
Bank of Israel

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This page is a summary of: Money and risk in a DSGE framework: A Bayesian application to the Eurozone, Journal of Macroeconomics, March 2012, Elsevier, DOI: 10.1016/j.jmacro.2011.10.003.
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