Higher-order dynamic effects of uncertainty risk under thick-tailed stochastic volatility

Financial Innovation

Table 1 Bayesian estimation results of structural parameters

Parameter	Meaning	Prior distribution	Prior confidence interval	Posterior mean
γ	Investor's attitude towards uncertainty	Normal	(0.82, 0.99)	0.84
σ_L	Inverse of Frisch's elasticity	Gamma	(1.55, 2.55)	1.97
b	Habitual smoothing factor	Uniform	(0.98, 0.99)	0.99
σ_C	Reciprocal of the elasticity of intertemporal substitution	Uniform	(1.21, 1.86)	1.54
κ	Capital utilization	Beta	(0.11, 0.31)	0.22
s	Investment adjustment cost	Normal	(5.11, 9.12)	6.97
m_p	Price stickiness	Beta	(0.72, 0.95)	0.75
m_w	Wage stickiness	Beta	(0.71, 0.89)	0.71
ι	Degree of price indexation	Beta	(0.31, 0.43)	0.39
χ_w	Degree of wage indexation	Beta	(0.02, 0.11)	0.07
φ_π	Response coefficient of interest rate to inflation	Normal	(1.51, 2.53)	2.26
φ_y	Response coefficient of interest rate to output volatility	Normal	(0.11, 0.22)	0.13
ρ_r	Continuity of monetary policy	Beta	(0.57, 0.61)	0.59
ρ_g	Continuity of fiscal expenditure	Beta	(0.45, 0.47)	0.46
ρ_z	Continuity of government transfer	Beta	(0.43, 0.49)	0.48
α_g	Fiscal expenditure response coefficient	Normal	(0.18, 0.28)	0.24
α_z	Government transfer response coefficient	Normal	(0.14, 0.24)	0.21