. However, in a Lucas-tree world, the aggregate risk is given by the process for GDP and cannot be altered by the creation of … will be nil. With heterogeneity in coefficients of relative risk aversion, safe assets can take the form of private bond … issues from low-risk-aversion to high-risk-aversion agents. The model assumes Epstein-Zin/Weil preferences with common values …

with key asset-pricing observations. If the coefficient of relative risk aversion equals 3-4, the model accords with … observed equity premia and risk-free real interest rates. If the intertemporal elasticity of substitution is greater than one … welfare cost of aggregate consumption uncertainty. In the baseline simulation, the welfare cost of disaster risk is large …

economies. RE typically associates with major historical episodes, such as the world wars and the Great Depression and analogous … match between the model and observed average rates of return requires a coefficient of relative risk aversion, γ, around 6 …

relative risk aversion. High stock-price volatility can be explained by incorporating time-varying long-run growth rates and …