News, disaster risk, and time-varying uncertainty

Shen, Wenyi

doi:10.1016/j.jedc.2014.11.009

Cited by 2 publications

(2 citation statements)

References 46 publications

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“…This approach has been criticized by Lucas' rational expectation hypothesis. Such propensity of savings cannot be changed endogenously, even if the disaster influences a savings-investment decision that is equally represented by a substitution of the present and future consumption (Shen 2015). Their findings may be the result of the structure of their model based on the backward-looking behavior of consumers.…”

Section: Previous Studies and Scientific Inquiriesmentioning

confidence: 95%

Effects of restoration measures from the east Japan earthquake in the Iwate coastal area: application of a DSGE model

Kunimitsu

2017

Asia-Pac J Reg Sci

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Restoration investment after an earthquake and tsunami can improve regional production, but effects of investment emerge differently in production, investment and consumption. Conventional economic models cannot reproduce such chronological nonconformity among economic indices. This study aims to analyze whether the dynamic stochastic general equilibrium (DSGE) model can duplicate the chronological restoration path and nonconformity, and quantifies the efficiency of the restoration measures, such as restoration investment with fund transfer and rebuilding subsidy, in the Iwate coastal region, where the east Japan earthquake hit. The analytical results are as follows: (1) consumption after the earthquake follows a hump-shaped path, where peak point of consumption was delayed from production peak, but then recovered; (2) private investment and labor demand decrease by more than self-restoration does when the restoration measures end; and (3) restoration investment with fund transfer and rebuilding subsidy improves the economy by accelerating the reconstruction of damaged capital stocks, and the benefits of these two measures outweigh their respective costs. These findings show that the influence of an unforeseen and disastrous earthquake can be explained well by the forward-looking decisions on consumption and savings (equal to investment) endogenizing in the DSGE model.

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Section: Previous Studies and Scientific Inquiriesmentioning

confidence: 95%

Effects of restoration measures from the east Japan earthquake in the Iwate coastal area: application of a DSGE model

Kunimitsu

2017

Asia-Pac J Reg Sci

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“…4 3. Because partisan conflict affects tail risks, this paper is tangentially related to studies highlighting the effects of time-varying volatility caused by rare events (Shen 2015;Gabaix 2008;Kelly and Jiang 2014, among others).…”

Section: Private Investorsmentioning

confidence: 99%

Partisan Conflict, News, and Investors' Expectations

Azzimonti¹

2021

J of Money Credit Banking

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In this paper, I consider the role of news provided by the media as signals used by investors to learn the underlying degree of partisan conflict. Partisan conflict is relevant for investment decisions because it affects the intensity of legislative effort aimed at (i) improving the institutional environment in which firms operate and (ii) instituting tax reforms. Higher partisan conflict makes tax reforms less likely but increases the probability of crises. These, in turn, affect the after-tax returns to investment. Whether the uncertainty and gridlock induced by partisan conflict is beneficial or detrimental for the economy depends on the status-quo level of taxes, on the identity of the party proposing policy reforms, and on the expected severity of crises. This is the case because even though a higher likelihood of bad economic outcomes is always negative for investment, stalemate makes tax-hikes less likely under some scenarios, and this may increase expected returns to investment. Agents do not observe the true degree of political disagreement (and hence the quality of policies), but can create expectations based on the observation of informative signals. Using a Bayesian learning model, I illustrate how these signals affect investment decisions by changing agents' expectations. I show that, to the extent crises are severe enough, an increase in the partisan conflict index (a summary of the signals observed) reduces expected returns and induces lower investment. Interestingly, investors react to news through changes in expectations even when there is no change in fundamentals.

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News, disaster risk, and time-varying uncertainty

Cited by 2 publications

References 46 publications

Effects of restoration measures from the east Japan earthquake in the Iwate coastal area: application of a DSGE model

Effects of restoration measures from the east Japan earthquake in the Iwate coastal area: application of a DSGE model

Partisan Conflict, News, and Investors' Expectations

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