Essays on growth

This paper studies the relationship between volatility and growth in an endogenous growth model with recursive Epstein-Zin preferences. The model shows that such a relationship crucially depends on the curvature of the utility function, i.e. on the parameter measuring risk aversion and intertemporal elasticity of substitution. In particular, when both these parameters are relatively high or relatively low, the simulations demonstrate that uncertainty has a negative e⁄ect on growth. Standard expected utility preferences, thus, show that this relationship is positive since they constrain risk aversion and intertempo ral elasticity of substitution to be one the inverse of the other. This suggests that it is preferrable to employ Epstein-Zin preferences to analyse the e⁄ects of uncertainty on long-term growth.