Rare Events and Long-Run Risks

Robert Barro and Tao Jin ()

Working Paper from Harvard University OpenScholar

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

Date: 2016-01
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Citations: View citations in EconPapers (9)

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http://scholar.harvard.edu/tjin/node/115371

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)
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Persistent link: https://EconPapers.repec.org/RePEc:qsh:wpaper:115371

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