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Title:Risk premia in general equilibrium PDF Logo
Authors:Posch, Olaf
Issue Date:2010
Series/Report no.:CESifo working paper Fiscal Policy, Macroeconomics and Growth 3131
Abstract:This paper shows that non-linearities imposed by a neoclassical production function alone can generate time-varying and asymmetric risk premia over the business cycle. These (empirical) key features become relevant, and asset market implications improve substantially when we allow for non-normalities in the form of rare disasters. We employ analytical solutions of dynamic stochastic general equilibrium models, including a novel solution with endogenous labor supply, to obtain closed-form expressions for the risk premium in production economies. In contrast to endowment economies, the curvature of the policy functions affects the risk premium through controlling the individual's effective risk aversion.
Subjects:risk premium
continuous-time DSGE
JEL:E21
G12
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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