Rare events and long-run risks

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: AEI Economics Working Paper ; No. 2016-16

Classification and Topics

• Classification: Wirtschaft
• Subject: macroeconomics

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Barro, Robert J. ; Jin, Tao
• Event: Veröffentlichung
• (who): American Enterprise Institute (AEI)
• (where): Washington, DC
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/280552
• Last update: 10.03.2025, 11:45 AM CET