Risk and Uncertainty in DSGE Models
::: Research Fellows of the CRC 649 "Economic Risk"
This project will quantify the role of risk and uncertainty in business cycles empirically and assess the ability of policy instruments to stabilize
shifts in risk and uncertainty using nonlinear dynamic stochastic general equilibrium (DSGE) models of the macroeconomy.
Assessing the contributions of measurable and unmeasurable risk (i.e., risk and uncertainty) to the movements in macroeconomic quantities is an
essential first step towards guiding the efforts of policy intervention in a stochastic economy. In contrast to level shocks such as productivity
or price markup shocks which primarily have a first order, certainty equivalent effect on macroeconomic variables such as output or inflation,
changes in the dispersion of distributions from which such shocks are drawn or shifts in the sentiment of agents concerning the robustness of their
decisions to the economic environment affect macroeconomic variables only through precautionary, that is, certainty nonequivalent, and higher order
nonlinear channels that preclude the analysis using linear methods.
The impact of news announcements on prices and price-risks
We develop statistical methods to analyze price and volatility (co-)jumps in financial assets. Such tools add new perspectives on the information
processing of financial markets and shed light on the dynamics of risk premia and other fundamental values. We are particularly interested in the
effect of central bank announcements of non-standard policy measures during the financial and European sovereign debt crisis. Methods are established
which allow to locate and to quantify their impact and evaluate their overall success.