How Benefcial Was the Great Moderation After All?

Roberto Pancrazi

No 270533, Economic Research Papers from University of Warwick - Department of Economics

Abstract: In this paper I compute the welfare e§ect 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.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 42
Date: 2013-07-10
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Journal Article: How beneficial was the Great Moderation after all? (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:270533

DOI: 10.22004/ag.econ.270533

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