Reinterpreting a Recent Temporally Aggregated Consumption-Cap Model

L. Ermini

No 119, Working Papers from University of Sydney, School of Economics

Abstract: Recent literature has found that the estimated values of the coefficient of relative risk aversion in consumption-based asset pricing models are much higher than indicated by the theory. Moreover, these values still remain implausibly high, although significantly reduced, when the phenomenon of time-averaging is taken into account when estimating the model with quarterly or annual data. As a possible solution to the puzzle, this paper suggests that the more realistic IMA(l,l) representation be assumed as the generating mechanism of consumption. In this case, a necessary and sufficient condition for reducing the estimated value of relative risk aversion is that the coefficient of the moving average component be negative. Some recent empirical and theoretical work in a related area seems to support this suggestion.

Date: 1988-12
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/2123/7580

Related works:
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:syd:wpaper:2123/7580

Access Statistics for this paper

More papers in Working Papers from University of Sydney, School of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Vanessa Holcombe ().