This paper studies the relationship between volatility and long-run growth in a complete market economy with human capital accumulation and Epstein-Zin preferences. There is both cross-country and time-series evidence that volatility is associated with lower growth. Matching this evidence has...

There is cross-country and time-series evidence that volatility is associated with slower growth. However, matching this evidence has proven to be a challenge for growth models without market failures, as they tend to predict the opposite for values of risk aversion greater than unity. This note...