Risk Preferences and the Welfare Cost of Business Cycles
AbstractThis paper reexamines the "cost of business cycle" calculations made by Lucas ("Models of Business Cycles," Basil Blackwell, New York, 1987) and Imrohoroglu (J. Polit. Econ. 97 (1989), 1364-1383) under alternative specifications of individuals' risk preferences and using alternative specifications of the stochastic process for per capita consumption. I find that for a class of preferences used by Epstein and Zin (J. Monetary Econom. 26 (1990), 387-407), in an analysis of the equity premium puzzle, which display "first-order" risk aversion, the welfare cost of business cycles is potentially much larger than previous estimates. (Copyright: Elsevier)
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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 1 (1998)
Issue (Month): 3 (July)
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Postal: Review of Economic Dynamics Academic Press Editorial Office 525 "B" Street, Suite 1900 San Diego, CA 92101
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Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Uzi Segal & Avia Spivak, 1988.
"First Order Versus Second Order Risk Aversion,"
UCLA Economics Working Papers, UCLA Department of Economics
540, UCLA Department of Economics.
- R. Mehra & E. Prescott, 2010.
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Levine's Working Paper Archive
1401, David K. Levine.
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- Kydland, Finn E & Prescott, Edward C, 1982.
"Time to Build and Aggregate Fluctuations,"
Econometrica, Econometric Society,
Econometric Society, vol. 50(6), pages 1345-70, November.
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- Finn E. Kydland & Edward C. Prescott, 1982. "Executable program for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes, Quantitative Macroeconomics & Real Business Cycles 4, Quantitative Macroeconomics & Real Business Cycles.
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