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Risk premia in general equilibrium

Olaf Posch ()

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Abstract: This paper shows that non-linearities from a neoclassical production function alone can generate time-varying, asymmetric risk premia and predictability over the business cycle. These empirical key features become relevant when we allow for non-normalities in the form of rare disasters. We employ analytical solutions of dynamic stochastic general equilibrium models, including a novel solution with endogenous labor supply, to obtain closed-form expressions for the risk premium in production economies. In contrast to an endowment economy with constant investment opportunities, the curvature of the consumption function affects the risk premium in production economies through controlling the individual's effective risk aversion.

Keywords: E21; G12; Risk premium; Continuous-time DSGE; Effective risk aversion (search for similar items in EconPapers)
Date: 2011-08-19
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00851860
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Published in Journal of Economic Dynamics and Control, Elsevier, 2011, 35 (9), pp.1557. ⟨10.1016/j.jedc.2010.12.017⟩

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Related works:
Journal Article: Risk premia in general equilibrium (2011) Downloads
Working Paper: Risk Premia in General Equilibrium (2010) Downloads
Working Paper: Risk premia in general equilibrium (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00851860

DOI: 10.1016/j.jedc.2010.12.017

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