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Relative risk aversion and power-law distribution of macroeconomic disasters

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  • Michał Brzeziński

    (Faculty of Economic Sciences, University of Warsaw)

Abstract

The coefficient of relative risk aversion (CRRA) is notoriously difficult to estimate. Recently, Barro and Jin (On the size distribution of macroeconomic disasters, Econometrica 2011; 79(3): 434–455) have come up with a new estimation approach that fits a power-law model to the tail of distribution of macroeconomic disasters. We show that their results can be successfully replicated using a more refined power-law fitting methodology and a more comprehensive data set.

Suggested Citation

  • Michał Brzeziński, 2013. "Relative risk aversion and power-law distribution of macroeconomic disasters," Working Papers 2013-04, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2013-04
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    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP89.pdf
    File Function: First version, 2013
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    Cited by:

    1. Etelvina Stefani Chavez & Gastón Milanesi & Gabriela Pesce, 2021. "Aversión al riesgo implícita en los precios de mercado de diferentes activos financieros de Argentina," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 16(1), pages 1-23, Enero - M.
    2. Michał Brzeziński, 2013. "Robust estimation of the Pareto index: A Monte Carlo Analysis," Working Papers 2013-32, Faculty of Economic Sciences, University of Warsaw.

    More about this item

    Keywords

    coefficient of relative risk aversion; power-law modelling; macroeconomic disasters; replication; robust statistics;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions

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