Business cycle fluctuations and the cost of insurrance in computable heterogeneous agent economies

Abstract

In this paper I study the business cycle implications of alternative insurance technologies using a computable general equilibrium heterogeneous agent environment. I find that the limited monetary arrangement entails larger fluctuations in hours relative to productivity than those that obtain in an identical economy where every risk is costlessly insurable. I also find that in the monetary economy the price level displays a markedly countercyclical behavior. Finally I evaluate the welafare costs of the monetary self-insurance arrangement