Structural Breaks in an Endogenous Growth Model
58 Pages Posted: 2 Nov 2020 Last revised: 29 Jul 2024
Date Written: October 2020
Abstract
We study the effects of parameter uncertainty prompted by structural breaks. In our model, agents respond differently to uncertainty prompted by regime shifts in shock processes than they react to comparable perceived increases in shock volatility. The magnitude of the response to an increase in uncertainty about TFP associated with a structural break is greater than that of a response to a comparable perceived rise in volatility. This is because lifetime utility varies more when shocks shift beliefs and perceived wealth.
Suggested Citation: Suggested Citation
Cogley, Timothy and Jovanovic, Boyan, Structural Breaks in an Endogenous Growth Model (October 2020). NBER Working Paper No. w28026, Available at SSRN: https://ssrn.com/abstract=3723263
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