TY  - JOUR
AU  - Angeletos,George-Marios
TI  - UNINSURED IDIOSYNCRATIC INVESTMENT RISK
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11180
PY  - 2005
Y2  - March 2005
UR  - http://www.nber.org/papers/w11180
L1  - http://www.nber.org/papers/w11180.pdf
N1  - Author contact info:
George-Marios Angeletos
Department of Economics
MIT E52-251
50 Memorial Drive
Cambridge, MA  02142-1347
Tel: 617/452-3859
Fax: 617/253-1330
E-Mail: angelet@mit.edu
AB  - This paper augments the neoclassical growth model to study the macroeconomic effects of idiosyncratic investment risk. The general equilibrium is solved in closed form under standard assumptions for preferences and technologies. A simple condition is identified for incomplete markets to result in both a lower interest rate and a lower capital stock in the steady state: the elasticity of intertemporal substitution must be higher than the income share of capital. For plausible calibrations of the model, the reduction in the steady-state levels of aggregate savings and income relative to complete markets is quantitatively significant. Finally, cyclical variation in private investment risks is shown to amplify the transitional dynamics.
ER  -