Ricerc@Sapienza

Macroeconomic uncertainty characterize agents beliefs about future borrowing and asset prices, especially under constrained debt conditions. The project aims to provide an empirical evaluation
of agents beliefs in a model where macroeconomic uncertainty is acknowledged to affect prices and quantities in debt market under alternative statistical and theoretical forms, as in Hansen and Sargent (2019).

This setup implies a structure of agents beliefs which, deviating from the rational expectation paradigm, embodies the idea that borrowers and policy makers are affected by multiple sources of uncertainty and behave according to both risk and ambiguity attitudes. The aim is to be able to empirically distinguish among uncertainty within a model (risk); uncertainty across a set of available known models (ambiguity); and uncertainty about each model (model misspecification).

The aim is to quantify the impact of different types of investors' beliefs about models for discounted expected utilities, evaluate their behaviour in a model where we introduce an Euler equation (consumption/saving decisions) with occasionally binding borrowing positions. Then, we will inspect whether and how uncertainty attitudes (risk/ambiguity) fluctuate over time determining debt and asset prices cyclical facts. This will be done by both using aggregate time series and cross-sectional data at the risky asset level.

The analysis is, therefore, designed to offer an historical quantification of how macroeconomic uncertainty is priced in debt markets, when agents form beliefs about the future value of their wealth and the state of the economy. Debt accumulation is constrained by an occasionally-binding collateral constraint. A standard recursive utility model is employed and adjusted to embody three key additional ingredients: i) a comprehensive setup for different uncertainty sources; ii) state- dependency in uncertainty attitudes; iii) limited borrowing capacity.