Template-type: ReDIF-Paper 1.0
Author-Name: Dr. Rina Rosenblatt-Wisch
Author-Name-First: Rina
Author-Name-Last: Rosenblatt-Wisch
Author-Person: pro392
Title: Loss Aversion in Aggregate Macroeconomic Time Series
Abstract: Prospect theory has been the focus of increasing attention in many Fields of economics. However, it has scarcely been addressed in macro-economic growth models - neither on theoretical nor on empirical grounds. In this paper we use prospect theory in a stochastic optimal growth model. Thereafter, the focus lies on linking the Eulerequation obtained from a prospect theory growth model of this kind to real macroeconomic data. We will use Generalized Method of Moments (GMM) estimation to test the implications of such a non-linear prospect utility Euler equation. Our results indicate that loss aversion can be traced in aggregate macroeconomic time series.
Length: 28 pages
Creation-Date: 2007
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2007/working_paper_2007_06
File-Format: text/html
Number: 2007-06
Classification-JEL: E21, O41
Keywords: Ramsey growth model, loss aversion, prospect theory, GMM
Handle: RePEc:snb:snbwpa:2007-06