Risk Aversion and Business Cycles in Iran’s Economy

Document Type : Original Article


1 Ph.D Candidate in Economics, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran

2 Professor of Economics, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran

3 Professor of Economics, Faculty of Social Sciences and Economics, Alzahra University, Tehran, Iran

4 Assistant Professor of Economics, Faculty of Economics and Social Sciences, Bu-Ali Sina University, Hamedan, Iran



The preferences of individuals towards risk are one of the most important economic variables and have a significant impact on economic decisions. Investment decisions, consumption, saving, purchases of insurance and future contracts are among the decisions where risk preferences play a key role. Considering the importance of risk preferences in the decision-making process, it is necessary to calculate an indicator that can show the state of risk-orientation in the whole economy. The purpose of this paper is to estimate the time series of the risk aversion parameter in Iran's economy based on quarterly data during the period of 2002-2017. For this purpose, Time- Varying parameter GARCH in mean models was used. Estimates of risk aversion in Iran's economy showed that this parameter was not constant and fluctuated between 0.81 and 7.6 over the period of study. The results also showed that risk aversion is much lower in the boom period than the recession and has a countercyclical behavior.


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