Risk Preferences and the Welfare Cost of Business Cycles
This 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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Volume (Year): 1 (1998)
Issue (Month): 3 (July)
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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.:
- Segal, Uzi & Spivak, Avia, 1990.
"First order versus second order risk aversion,"
Journal of Economic Theory,
Elsevier, vol. 51(1), pages 111-125, June.
- Mehra, Rajnish & Prescott, Edward C., 1985.
"The equity premium: A puzzle,"
Journal of Monetary Economics,
Elsevier, vol. 15(2), pages 145-161, March.
- Kydland, Finn E & Prescott, Edward C, 1982.
"Time to Build and Aggregate Fluctuations,"
Econometric Society, vol. 50(6), pages 1345-70, November.
- Finn E. Kydland & Edward C. Prescott, 1982. "Web interface for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4a, Quantitative Macroeconomics & Real Business Cycles.
- Finn E. Kydland & Edward C. Prescott, 1982. "Executable program for "Time to Build and Aggregate Fluctuations"," QM&RBC Codes 4, Quantitative Macroeconomics & Real Business Cycles.
- Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
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