Take Action

Home | Faculty & Research Overview | Research

Research Details

How risky is consumption in the long-run? Benchmark estimates from a robust estimator, Review of Financial Studies

Abstract

The long-run standard deviation of consumption growth is a key moment in determining risk premia when agents have Epstein--Zin preferences. This paper studies a new estimator of the long-run standard deviation shown to provide a superior bias/variance trade-off and better confidence interval coverage than previous methods. In the postwar period the long-run standard deviation of consumption growth is estimated to be 2.5 percent per year with an upper bound to the 95-percent confidence interval of 4.9 percent. The analogous values in the longest available sample are 4 and 5.6 percent. These values can be taken as benchmarks for future calibrations.

Type

Article

Author(s)

Ian Dew-Becker

Date Published

2016

Citations

Dew-Becker, Ian. 2016. How risky is consumption in the long-run? Benchmark estimates from a robust estimator. Review of Financial Studies.

KELLOGG INSIGHT

Explore leading research and ideas

Find articles, podcast episodes, and videos that spark ideas in lifelong learners, and inspire those looking to advance in their careers.
learn more

COURSE CATALOG

Review Courses & Schedules

Access information about specific courses and their schedules by viewing the interactive course scheduler tool.
LEARN MORE

DEGREE PROGRAMS

Discover the path to your goals

Whether you choose our Full-Time, Part-Time or Executive MBA program, you’ll enjoy the same unparalleled education, exceptional faculty and distinctive culture.
learn more

Take Action