IDEAS home Printed from https://ideas.repec.org/p/dpr/wpaper/1272.html
   My bibliography  Save this paper

Relative Risk Aversion and Business Fluctuations

Author

Listed:
  • Ken-ichi Hashimoto
  • Ryonghun Im
  • Takuma Kunieda
  • Akihisa Shibata

Abstract

By applying a simple dynamic general equilibrium model without exogenous shocks inhabited by infinitely lived capitalists and workers, we show that a higher degree of relative risk aversion can destabilize an economy. In traditional real business cycle (RBC) theory, a higher degree of relative risk aversion dampens the amplitude of the consumption fluctuations caused by exogenous shocks through consumption smoothing. However, a higher degree of relative risk aversion combined with a high degree of elasticity of the marginal product of capital can also lead to the emergence of a nonlinear mechanism that causes endogenous business fluctuations. The nontrivial steady state loses stability due to the higher degree of relative risk aversion; thus, endogenous business fluctuations can occur. This result suggests that for a deeper understanding of boom-bust cycles, researchers should merge exogenous and endogenous business fluctuations when investigating economies.

Suggested Citation

  • Ken-ichi Hashimoto & Ryonghun Im & Takuma Kunieda & Akihisa Shibata, 2025. "Relative Risk Aversion and Business Fluctuations," ISER Discussion Paper 1272, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:1272
    as

    Download full text from publisher

    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2025/DP1272.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jess Benhabib & Kazuo Nishimura, 2012. "The Hopf Bifurcation and Existence and Stability of Closed Orbits in Multisector Models of Optimal Economic Growth," Springer Books, in: John Stachurski & Alain Venditti & Makoto Yano (ed.), Nonlinear Dynamics in Equilibrium Models, edition 127, chapter 0, pages 51-73, Springer.
    2. Havranek, Tomas & Horvath, Roman & Irsova, Zuzana & Rusnak, Marek, 2015. "Cross-country heterogeneity in intertemporal substitution," Journal of International Economics, Elsevier, vol. 96(1), pages 100-118.
    3. Sebastian Gechert & Tomas Havranek & Zuzana Irsova & Dominika Kolcunova, 2022. "Measuring Capital-Labor Substitution: The Importance of Method Choices and Publication Bias," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 55-82, July.
    4. Sebastian Gechert & Tomas Havranek & Zuzana Irsova & Dominika Kolcunova, 2022. "Measuring Capital-Labor Substitution: The Importance of Method Choices and Publication Bias," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 45, pages 55-82, July.
    5. Grandmont, Jean-Michel, 1985. "On Endogenous Competitive Business Cycles," Econometrica, Econometric Society, vol. 53(5), pages 995-1045, September.
    6. Abhijit Vinayak Banerjee, 2020. "Field Experiments and the Practice of Economics," American Economic Review, American Economic Association, vol. 110(7), pages 1937-1951, July.
    7. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-1370, November.
    8. Benhabib, Jess & Day, Richard H., 1982. "A characterization of erratic dynamics in, the overlapping generations model," Journal of Economic Dynamics and Control, Elsevier, vol. 4(1), pages 37-55, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ken-ichi Hashimoto & Ryonghun Im & Takuma Kunieda & Akihisa Shibata, 2025. "Relative Risk Aversion and Business Fluctuations," KIER Working Papers 1110, Kyoto University, Institute of Economic Research.
    2. Ken-ichi Hashimoto & Ryonghun Im & Takuma Kunieda & Akihisa Shibata, 2025. "Relative Risk Aversion and Business Fluctuations," Discussion Paper Series 285, School of Economics, Kwansei Gakuin University.
    3. Hashimoto, Ken-ichi & Im, Ryonghun & Kunieda, Takuma & Shibata, Akihisa, 2022. "Financial destabilization," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    4. Calvet, Laurent-Emmanuel & Grandmont, Jean-Michel & Lemaire, Isabelle, 2018. "Aggregation of heterogenous beliefs, asset pricing, and risk sharing in complete financial markets," Research in Economics, Elsevier, vol. 72(1), pages 117-146.
    5. George-Marios Angeletos & Laurent E. Calvet, 2001. "Incomplete Markets, Growth, and the Business Cycle," Harvard Institute of Economic Research Working Papers 1910, Harvard - Institute of Economic Research.
    6. Michaël Assous & Muriel Dal Pont Legrand & Harald Hagemann, 2016. "Business cycles and growth," Chapters, in: Gilbert Faccarello & Heinz D. Kurz (ed.), Handbook on the History of Economic Analysis Volume III, chapter 4, pages 27-39, Edward Elgar Publishing.
    7. Tarek Coury & Yi Wen, 2009. "Global indeterminacy in locally determinate real business cycle models," International Journal of Economic Theory, The International Society for Economic Theory, vol. 5(1), pages 49-60, March.
    8. Angeletos, George-Marios & Calvet, Laurent-Emmanuel, 2005. "Incomplete-market dynamics in a neoclassical production economy," Journal of Mathematical Economics, Elsevier, vol. 41(4-5), pages 407-438, August.
    9. Akhmet, Marat & Akhmetova, Zhanar & Fen, Mehmet Onur, 2014. "Chaos in economic models with exogenous shocks," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 95-108.
    10. Philippe Michel & Alain Venditti & Claude Jessua, 1996. "Croissance optimale et cycles dans le modèle à générations imbriquées : un exemple," Revue Économique, Programme National Persée, vol. 47(3), pages 487-497.
    11. Tvede Mich, 2009. "Fluctuations in Overlapping Generations Economies," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-19, May.
    12. Irsova, Zuzana & Doucouliagos, Hristos & Havranek, Tomas & Stanley, T. D., 2023. "Meta-Analysis of Social Science Research: A Practitioner’s Guide," EconStor Preprints 273719, ZBW - Leibniz Information Centre for Economics.
    13. William Barnett & Evgeniya Duzhak, 2010. "Empirical assessment of bifurcation regions within New Keynesian models," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(1), pages 99-128, October.
    14. repec:ipg:wpaper:2014-461 is not listed on IDEAS
    15. Alexeeva, Tatyana A. & Kuznetsov, Nikolay V. & Mokaev, Timur N., 2021. "Study of irregular dynamics in an economic model: attractor localization and Lyapunov exponents," Chaos, Solitons & Fractals, Elsevier, vol. 152(C).
    16. Gupta, Rangan & Stander, Lardo, 2018. "Endogenous fluctuations in an endogenous growth model: An analysis of inflation targeting as a policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 1-8.
    17. Farmer, Roger E.A., 2016. "The Evolution Of Endogenous Business Cycles," Macroeconomic Dynamics, Cambridge University Press, vol. 20(2), pages 544-557, March.
    18. Orlando Gomes, 2007. "Routes to chaos in macroeconomic theory," Journal of Economic Studies, Emerald Group Publishing, vol. 33(6), pages 437-468, January.
    19. Xu, Fei & Lai, Yongzeng & Shu, Xiao-Bao, 2018. "Chaos in integer order and fractional order financial systems and their synchronization," Chaos, Solitons & Fractals, Elsevier, vol. 117(C), pages 125-136.
    20. Takao Asano & Akihisa Shibata & Masanori Yokoo, 2023. "Controlling Chaotic Fluctuations through Monetary Policy," KIER Working Papers 1091, Kyoto University, Institute of Economic Research.
    21. Banerjee, Sanjibani & A. Barnett, William & A. Duzhak, Evgeniya & Gopalan, Ramu, 2011. "Bifurcation analysis of Zellner's Marshallian Macroeconomic Model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1577-1585, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dpr:wpaper:1272. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Librarian (email available below). General contact details of provider: https://edirc.repec.org/data/isosujp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.