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Power Risk Aversion Utility Functions

  • Danyang Xie

    ()

    (Department of Economics, Hong Kong University of Science and Technology
    International Monetary Fund)

This paper introduces a new class of utility functions---the power risk aversion. It is shown that the CRRA and CARA utility functions are both in this class. The implications of the PRA utility functions are explored in the context of growth theory. In particular, it is found that economies facing a common real interest rate do not necessarily grow at the same rates if they start with different levels of capital stock. Thus diversity in growth performance across countries occurs even if these countries have access to perfect international capital markets. Potential applications of the PRA in asset pricing are considered.

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File Function: Last version, 2000
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Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 22.

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Length: 18 pages
Date of creation: Nov 1999
Date of revision: Oct 2000
Publication status: Published in Annals of Economics and Finance, Nov 2000, pages 265-282
Handle: RePEc:cuf:wpaper:22
Contact details of provider: Web page: http://cema.cufe.edu.cn/

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