How Beneficial was the Great Moderation After All?

Roberto Pancrazi

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: In this paper I compute the welfare effect of the Great Moderation, using a consumption based asset pricing model. The Great Moderation is modelled according to the data properties of consumption and dividend growth, which display a reduction of their innovation-volatility and increased persistence. The theoretical model (a long-run risk model), calibrated to match average asset pricing variables in the data, is able to capture the two features of the Great Moderation, and it predicts a welfare loss caused by the Great Moderation (-0.9 percent), due mainly to the utility cost of a late uncertainty resolution. JEL classification: Great Moderation ; welfare ; long-run risk ; asset pricing. JEL codes: E32, G10

Date: 2013
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Citations: View citations in EconPapers (5)

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Journal Article: How beneficial was the Great Moderation after all? (2014)
Working Paper: How Benefcial Was the Great Moderation After All? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1016

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