Disaster Risk and Business Cycles

Francois Gourio

American Economic Review, 2012, vol. 102, issue 6, 2734-66

Abstract: Motivated by the evidence that risk premia are large and countercyclical, this paper studies a tractable real business cycle model with a small risk of economic disaster, such as the Great Depression. An increase in disaster risk leads to a decline of employment, output, investment, stock prices, and interest rates, and an increase in the expected return on risky assets. The model matches well data on quantities, asset prices, and particularly the relations between quantities and prices, suggesting that variation in aggregate risk plays a significant role in some business cycles. (JEL E13, E32, E44, G32)

Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (420)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/aer.102.6.2734 (application/pdf)
http://www.aeaweb.org/aer/data/oct2012/20100375_data.zip dataset accompanying article (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Disasters Risk and Business Cycles (2009)
Working Paper: Disaster risk and business cycles (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aecrev:v:102:y:2012:i:6:p:2734-66

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().