Irarrazabal, Alfonso; Parra-Alvarez, Juan Carlos - School of Economics and Management, University of Aarhus - 2015
This paper revisits the fit of disaster risk models where a representative agent has recursive preferences and the probability of a macroeconomic disaster changes over time. We calibrate the model as in Wachter (2013) and perform two sets of tests to assess the empirical performance of the model...