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The pricing of economic risks under time-separable and recursive preferences

Abstract

Consider an agent with time-separable constant absolute risk aversion preferences who faces an exogenous income process and has access to a riskless saving technology with a constant interest rate. That agent's indirect utility over income streams is a form of Epstein--Zin (1989) preferences. Epstein--Zin preferences have been widely studied in the recent literature because of their implications for the pricing of shocks to expectations of future economic conditions. Identical predictions are naturally and generally obtained also under purely time-separable preferences. The paper's results also point toward a very broad class of analytically solvable models.

Type

Working Paper

Author(s)

Ian Dew-Becker

Date Published

2016

Citations

Dew-Becker, Ian. 2016. The pricing of economic risks under time-separable and recursive preferences.

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