IDEAS home Printed from https://ideas.repec.org/p/aei/rpaper/905253.html

Rare events and long-run risks

Author

Listed:
  • Robert J. Barro

    (American Enterprise Institute)

  • Tao Jin

Abstract

Rare events (RE) and long-run risks (LRR) are complementary approaches for characterizing macroeconomic variables and for understanding asset pricing. We estimate a model with RE and LRR using long-term consumption data for 42 economies. RE typically associates with major historical episodes, such as world wars and depressions and analogous country-specific events. LRR reflects gradual processes that influence long-run growth rates and volatility. A match between the model and observed average rates of return requires a coefficient of relative risk aversion, γ, around 6. Most of the explanation for the equity premium derives from RE, although LRR makes a moderate contribution.

Suggested Citation

  • Robert J. Barro & Tao Jin, 2016. "Rare events and long-run risks," AEI Economics Working Papers 905253, American Enterprise Institute.
    • Handle: RePEc:aei:rpaper:905253
    as

    Download full text from publisher

    File URL: http://www.aei.org/publication/rare-events-and-long-run-risks
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Robert J Barro & Jesús Fernández-Villaverde & Oren Levintal & Andrew Mollerus, 2022. "Safe Assets," The Economic Journal, Royal Economic Society, vol. 132(646), pages 2075-2100.
      • Robert J. Barro, 2014. "Safe Assets," Working Papers 2014-28, Economic Research Institute, Bank of Korea.
      • Fernández-Villaverde, Jesús & Barro, Robert & Levintal, Oren & Mollerus, Andrew, 2017. "Safe Assets," CEPR Discussion Papers 12043, C.E.P.R. Discussion Papers.
      • Robert J. Barro & Jesús Fernández-Villaverde & Oren Levintal & Andrew Mollerus, 2014. "Safe Assets," NBER Working Papers 20652, National Bureau of Economic Research, Inc.
      • Robert Barro & Jesus Fernandez-Villaverde & Oren Levintal & Andrew Mollerus, 2017. "Safe Assets," PIER Working Paper Archive 17-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 10 May 2017.
    2. Baldi, Mauro Maria & Mammana, Cristiana & Michetti, Elisabetta, 2024. "The κ-logistic growth model. Qualitative and quantitative dynamics," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 225(C), pages 350-369.
    3. Lars Hultkrantz, 2021. "Discounting in economic evaluation of healthcare interventions: what about the risk term?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(3), pages 357-363, April.
    4. Fatouros, Nikos & Stengos, Thanasis, 2023. "Nuclear Energy, Economic Growth, and the Environment: Optimal policies in a model with endogenous technical change and environmental constraints," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    5. Horvath, Jaroslav, 2020. "Macroeconomic disasters and the equity premium puzzle: Are emerging countries riskier?," Journal of Economic Dynamics and Control, Elsevier, vol. 112(C).
    6. David Alaminos & Ignacio Esteban & M. Belén Salas, 2023. "Neural networks for estimating Macro Asset Pricing model in football clubs," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 30(2), pages 57-75, April.
    7. Guo, Meng & Luo, Danglun & Liu, Chen, 2025. "Opportunism in crisis: Big baths and COVID-19 disclosure," International Review of Financial Analysis, Elsevier, vol. 102(C).
    8. Lorenzo Esposito & Giuseppe Mastromatteo, 2019. "Defaultnomics: Making Sense of the Barro-Ricardo Equivalence in a Financialized World," Economics Working Paper Archive wp_933, Levy Economics Institute.
    9. Rayenda Khresna Brahmana & Doddy Setiawan & Maria Kontesa, 2022. "The blame game: COVID-19 crisis and financial performance," SN Business & Economics, Springer, vol. 2(11), pages 1-20, November.
    10. Robert Barro, 2023. "r Minus g," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 1-17, April.
    11. Merella, Vincenzo & Satchell, Stephen E., 2022. "By force of confidence," European Economic Review, Elsevier, vol. 150(C).
    12. Barro, Robert J. & Ursúa, José F. & Weng, Joanna, 2022. "Macroeconomics of the Great Influenza Pandemic, 1918–1920," Research in Economics, Elsevier, vol. 76(1), pages 21-29.
    13. Xu, Xiangyun & Li, Xing & Meng, Jie & Hu, Xueqi & Ge, Yingfan, 2024. "The impact of the tail risk of demand on corporate investment: Evidence from Chinese manufacturing firms," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    14. Sönksen, Jantje & Grammig, Joachim, 2021. "Empirical asset pricing with multi-period disaster risk: A simulation-based approach," Journal of Econometrics, Elsevier, vol. 222(1), pages 805-832.
    15. Gomes Orlando, 2024. "Economic Growth in the Age of Ubiquitous Threats: How Global Risks are Reshaping Growth Theory," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-15, January.
    16. Bruno Ćorić & Rangan Gupta, 2023. "Economic disasters and inequality: a note," Economic Change and Restructuring, Springer, vol. 56(5), pages 3527-3543, October.
    17. Andrew Y. Chen & Rebecca Wasyk & Fabian Winkler, 2017. "A Likelihood-Based Comparison of Macro Asset Pricing Models," Finance and Economics Discussion Series 2017-024, Board of Governors of the Federal Reserve System (U.S.).
    18. Lee, Kiryoung & Kim, Minki & Lam, Sing-Sen, 2024. "Chinese consumption shocks and U.S. equity returns," International Review of Economics & Finance, Elsevier, vol. 96(PA).
    19. Lanfear, Matthew G. & Lioui, Abraham & Siebert, Mark G., 2019. "Market anomalies and disaster risk: Evidence from extreme weather events," Journal of Financial Markets, Elsevier, vol. 46(C).

    More about this item

    Keywords

    ;

    JEL classification:

    • A - General Economics and Teaching

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aei:rpaper:905253. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dave Adams, CIO (email available below). General contact details of provider: https://edirc.repec.org/data/aeiiius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.