Real business cycle dynamics under first-order risk aversion
AbstractThis paper incorporates preferences that display first-order risk aversion (FORA) into a standard real business cycle model. Although FORA preferences represent a sharp departure from the expected utility/constant relative risk aversion (EU/CRRA) preferences common in the business cycle literature, the change has only a negligible effect on the model s second moment implications. In fact, for what I argue is an empirically reasonable "ballpark" calibration of the FORA preferences, the moment implications are essentially identical to those under EU/CRRA, while the welfare cost of aggregate fluctuations in the model is substantially larger.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Dallas in its series Working Papers with number 0704.
Date of creation: 2007
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-11 (All new papers)
- NEP-BEC-2007-06-11 (Business Economics)
- NEP-DGE-2007-06-11 (Dynamic General Equilibrium)
- NEP-MAC-2007-06-11 (Macroeconomics)
- NEP-UPT-2007-06-11 (Utility Models & Prospect Theory)
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- Dario Caldara & Jesus Fernandez-Villaverde & Juan F. Rubio-Ramirez & Wen Yao, 2009.
"Computing DSGE Models with Recursive Preferences,"
PIER Working Paper Archive
09-018, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
- Dario Caldara & Jesús Fernández-Villaverde & Juan F. Rubio-Ramírez & Wen Yao, 2009. "Computing DSGE Models with Recursive Preferences," NBER Working Papers 15026, National Bureau of Economic Research, Inc.
- Caldara, Dario & Fernández-Villaverde, Jesús & Rubio-Ramirez, Juan Francisco & Yao, Wen, 2009. "Computing DSGE Models with Recursive Preferences," CEPR Discussion Papers 7312, C.E.P.R. Discussion Papers.
- Ralph S.J. Koijen & Jules H. van Binsbergen & Juan F. Rubio-Ramírez & Jesus Fernandez-Villaverde, 2008. "Likelihood Estimation of DSGE Models with Epstein-Zin Preferences," 2008 Meeting Papers 1099, Society for Economic Dynamics.
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