Rare events and long-run risks

Robert Barro and Tao Jin ()

AEI Economics Working Papers from American Enterprise Institute

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, γ, around 6. Most of the explanation for the equity premium derives from RE, although LRR makes a moderate contribution.

Keywords: macroeconomics (search for similar items in EconPapers)
JEL-codes: A (search for similar items in EconPapers)
Date: 2016-10
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.aei.org/publication/rare-events-and-long-run-risks (text/html)

Related works:
Journal Article: Rare Events and Long-Run Risks (2021)
Working Paper: Rare Events and Long-Run Risks (2016)
Working Paper: Rare Events and Long-Run Risks (2016)
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:aei:rpaper:905253

Access Statistics for this paper

More papers in AEI Economics Working Papers from American Enterprise Institute Contact information at EDIRC.
Bibliographic data for series maintained by Dave Adams, CIO ().