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sunanda roy
''On price uncertainty, nominal assets and uninsurable idiosyncratic risks''
( 2007, Vol. 4 No.32 )
The paper discusses a way in which price uncertainty may affect the extent of idiosyncratic, uninsurable risks in an incomplete markets economy with nominal assets and thereby affect output and welfare. Although the returns on these assets are constant and riskfree in nominal terms, price uncertainty causes their real returns to be stochastic. This affects the ability of households to diversify their idiosyncratic risks using these assets and consequently the extent of uninsurable risks in the economy. The paper establishes a relationship between the volume of trade in nominal assets, the stochastic characteristics of the price shocks and the covariance between the price and idiosyncratic shocks.
JEL: D5 - General Equilibrium and Disequilibrium: General
E4 - Money and Interest Rates: General
Manuscript Received : Apr 04 2007 Manuscript Accepted : Sep 03 2007

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