%0 Report %1 Barro:NBER:2011 %A Barro, Robert J. %A Ursúa, José F. %B Working Paper Series %D 2011 %K disaster equity-premium %N 17328 %R 10.3386/w17328 %T Rare Macroeconomic Disasters %U http://www.nber.org/papers/w17328 %X The potential for rare macroeconomic disasters may explain an array of asset-pricing puzzles. Our empirical studies of these extreme events rely on long-term data now covering 28 countries for consumption and 40 for GDP. A baseline model calibrated with observed peak-to-trough disaster sizes accords with the average equity premium with a reasonable coefficient of relative risk aversion. High stock-price volatility can be explained by incorporating time-varying long-run growth rates and disaster probabilities. Business-cycle models with shocks to disaster probability have implications for the cyclical behavior of asset returns and corporate leverage, and international versions may explain the uncovered-interest-parity puzzle. Richer models of disaster dynamics allow for transitions between normalcy and disaster, bring in post-crisis recoveries, and use the full time series on consumption. Potential future research includes applications to long-term economic growth and environmental economics and the use of stock-price options and other variables to gauge time-varying disaster probabilities.

@techreport{Barro:NBER:2011, abstract = {The potential for rare macroeconomic disasters may explain an array of asset-pricing puzzles. Our empirical studies of these extreme events rely on long-term data now covering 28 countries for consumption and 40 for GDP. A baseline model calibrated with observed peak-to-trough disaster sizes accords with the average equity premium with a reasonable coefficient of relative risk aversion. High stock-price volatility can be explained by incorporating time-varying long-run growth rates and disaster probabilities. Business-cycle models with shocks to disaster probability have implications for the cyclical behavior of asset returns and corporate leverage, and international versions may explain the uncovered-interest-parity puzzle. Richer models of disaster dynamics allow for transitions between normalcy and disaster, bring in post-crisis recoveries, and use the full time series on consumption. Potential future research includes applications to long-term economic growth and environmental economics and the use of stock-price options and other variables to gauge time-varying disaster probabilities.}, added-at = {2014-10-30T18:53:52.000+0100}, author = {Barro, Robert J. and Ursúa, José F.}, biburl = {https://www.bibsonomy.org/bibtex/2d4169b5baa69a80f35fb7d06538c07de/fcqms}, description = {Rare Macroeconomic Disasters}, doi = {10.3386/w17328}, institution = {National Bureau of Economic Research}, interhash = {69d390d419070030138e0409388fd506}, intrahash = {d4169b5baa69a80f35fb7d06538c07de}, keywords = {disaster equity-premium}, month = {August}, number = 17328, series = {Working Paper Series}, timestamp = {2014-10-30T18:57:43.000+0100}, title = {Rare Macroeconomic Disasters}, type = {Working Paper}, url = {http://www.nber.org/papers/w17328}, year = 2011 }