This paper considers the business cycle, asset pricing, and welfare effects of increased risk aversion, while holding intertemporal substitution preferences constant. I show that increasing risk aversion does not significantly affect the relative variabilities and co-movements of aggregate...

In his presidential address to the American Economic Association, Robert Lucas claimed that the welfare costs of the business cycle in the United States equaled .05 percent of consumption. His calculation compared the utility of a representative consumer receiving actual per-capita consumption...