Real business cycle dynamics under first-order risk aversion

No 704, Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper incorporates preferences that display first-order risk aversion (FORA) into a standard real business cycle model. Although FORA preferences represent a sharp departure from the expected utility/constant relative risk aversion (EU/CRRA) preferences common in the business cycle literature, the change has only a negligible effect on the model s second moment implications. In fact, for what I argue is an empirically reasonable \"ballpark\" calibration of the FORA preferences, the moment implications are essentially identical to those under EU/CRRA, while the welfare cost of aggregate fluctuations in the model is substantially larger.

Keywords: Business; cycles (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-upt
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.dallasfed.org/~/media/documents/research/papers/2007/wp0704.pdf Full text (application/pdf)

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:fip:feddwp:0704

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().