Risk Preferences and the Welfare Cost of Business Cycles

Jim Dolmas

Review of Economic Dynamics, 1998, vol. 1, issue 3, 646-676

Abstract: This paper reexamines the "cost of business cycle" calculations made by Lucas ("Models of Business Cycles," Basil Blackwell, New York, 1987) and Imrohoroglu (J. Polit. Econ. 97 (1989), 1364-1383) under alternative specifications of individuals' risk preferences and using alternative specifications of the stochastic process for per capita consumption. I find that for a class of preferences used by Epstein and Zin (J. Monetary Econom. 26 (1990), 387-407), in an analysis of the equity premium puzzle, which display "first-order" risk aversion, the welfare cost of business cycles is potentially much larger than previous estimates. (Copyright: Elsevier)

JEL-codes: D81 E32 (search for similar items in EconPapers)
Date: 1998
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Citations: View citations in EconPapers (86)

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Persistent link: https://EconPapers.repec.org/RePEc:red:issued:v:1:y:1998:i:3:p:646-676

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DOI: 10.1006/redy.1998.0020

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