alexa S-Shaped Utility Explains the Subprime Crash
ISSN: 2375-4389

Journal of Global Economics
Open Access

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Research Article

S-Shaped Utility Explains the Subprime Crash

João José de Farias Neto*

Instituto de Estudos Avançados, CTA, Trevo Cel. Av. J. A. A. do Amarante, no1, Putim, São José dos Campos, SP, Brazil

*Corresponding Author:
João José de Farias Neto
Instituto de Estudos Avançados
CTA, Trevo Cel. Av. J. A. A.
do Amarante, no1, Putim São
José dos Campos, SP, Brazil
Tel:
+55-(012)-3947-5315
E-mail: [email protected]

Received: March 09, 2015 Accepted: May 08, 2015 Published: May 18, 2015

Citation: Farias Neto JJ (2015) S-Shaped Utility Explains the Subprime Crash. J Glob Econ 3:146. doi:10.4172/2375-4389.1000146

Copyright: © 2015 Farias Neto JJ. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

 

Abstract

Author propose an S-shaped utility function of consumption which, combined with a heterogeneous agents and external habit setting, it’s well the first order moments of the American financial and macroeconomic time series relevant for the equity premium puzzle in the second half of XX century. The average relative risk aversion of the agents remains in the 0-3 range. The shape of the utility and its relative risk aversion function of consumption suggest an explanation for the 2008 suprime crash.

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