IDEAS home Printed from https://ideas.repec.org/p/qsh/wpaper/115371.html
   My bibliography  Save this paper

Rare Events and Long-Run Risks

Author

Listed:
  • Robert J. Barro
  • 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, ?, 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," Working Paper 115371, Harvard University OpenScholar.
  • Handle: RePEc:qsh:wpaper:115371
    as

    Download full text from publisher

    File URL: http://scholar.harvard.edu/tjin/node/115371
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mariano M. Croce & Martin Lettau & Sydney C. Ludvigson, 2015. "Investor Information, Long-Run Risk, and the Term Structure of Equity," Review of Financial Studies, Society for Financial Studies, vol. 28(3), pages 706-742.
    2. M. Hashem Pesaran & Davide Pettenuzzo & Allan Timmermann, 2006. "Forecasting Time Series Subject to Multiple Structural Breaks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1057-1084.
    3. Fatih Guvenen, 2009. "A Parsimonious Macroeconomic Model for Asset Pricing," Econometrica, Econometric Society, vol. 77(6), pages 1711-1750, November.
    4. Riccardo Colacito & Mariano M. Croce, 2011. "Risks for the Long Run and the Real Exchange Rate," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 153-181.
    5. Emi Nakamura & Dmitriy Sergeyev & Jón Steinsson, 2017. "Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 1-39, January.
    Full references (including those not matched with items on IDEAS)

    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, 2014. "Safe Assets," NBER Working Papers 20652, National Bureau of Economic Research, Inc.
      • Barro, Robert J. & Fern�ndez-Villaverde, Jes�s & Levintal, Oren & Mollerus, Andrew, 2017. "Safe Assets," CEPR Discussion Papers 12043, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:qsh:wpaper:115371. 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: (Richard Brandon). General contact details of provider: http://edirc.repec.org/data/cbrssus.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.