Disasterization: A Simple Way to Fix the Asset Pricing Properties of Macroeconomic Models
A central difficulty in economics is to create a model with both good business cycle properties and asset pricing properties. I show how to solve this difficulty by a simple portable modeling device: the "disasterization" of models. Take an economy with good business cycle properties and create a new, "disasterized" economy, which is essentially identical to the original one except that disasters can destroy part of the capital stock and productivity. In such a disasterized economy, asset prices exhibit high and volatile risk premia, but macro variables remain unchanged. Perturbations of this benchmark allow for feedback from finance to macro.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 101 (2011)
Issue (Month): 3 (May)
|Contact details of provider:|| Web page: https://www.aeaweb.org/aer/|
More information through EDIRC
|Order Information:||Web: https://www.aeaweb.org/subscribe.html|
References listed on IDEAS
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.:
- Jessica A. Wachter, 2013.
"Can Time-Varying Risk of Rare Disasters Explain Aggregate Stock Market Volatility?,"
Journal of Finance,
American Finance Association, vol. 68(3), pages 987-1035, 06.
- Jessica Wachter, 2008. "Can Time-Varying Risk of Rare Disasters Explain Aggregate Stock Market Volatility?," NBER Working Papers 14386, National Bureau of Economic Research, Inc.
- Jessica Wachter, 2008. "Can time-varying risk of rare disasters explain aggregate stock market volatility?," 2008 Meeting Papers 944, Society for Economic Dynamics.
- Xavier Gabaix, 2012.
"Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 127(2), pages 645-700.
- Xavier Gabaix, 2008. "Variable Rare Disasters: An Exactly Solved Framework for Ten Puzzles in Macro-Finance," NBER Working Papers 13724, National Bureau of Economic Research, Inc.
- Barro, Robert, 2006.
"Rare Disasters and Asset Markets in the Twentieth Century,"
3208215, Harvard University Department of Economics.
- Robert J. Barro, 2006. "Rare Disasters and Asset Markets in the Twentieth Century," The Quarterly Journal of Economics, Oxford University Press, vol. 121(3), pages 823-866.
- TallariniJr., Thomas D., 2000.
"Risk-sensitive real business cycles,"
Journal of Monetary Economics,
Elsevier, vol. 45(3), pages 507-532, June.
When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:406-09. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros)or (Michael P. Albert)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.