ON THE SIZE DISTRIBUTION OF MACROECONOMIC DISASTERS

• 成果类型: Article
• 署名作者: Barro, Robert J.; Jin, Tao
• 署名单位: Harvard University
• 刊物名称: ECONOMETRICA
• ISSN/ISSBN: 0012-9682
• DOI: 10.3982/ECTA8827
• 发表日期: 2011
• 页码: 1567-1589
• 关键词: rare disasters; risk-aversion; asset prices; LAW; premium

摘要

The coefficient of relative risk aversion is a key parameter for analyses of behavior toward risk, but good estimates of this parameter do not exist. A promising place for reliable estimation is rare macroeconomic disasters, which have a major influence on the equity premium. The premium depends on the probability and size distribution of disasters, gauged by proportionate declines in per capita consumption or gross domestic product. Long-term national-accounts data for 36 countries provide a large sample of disasters of magnitude 10% or more. A power-law density provides a good fit to the size distribution, and the upper-tail exponent, alpha, is estimated to be around 4. A higher alpha signifies a thinner tail and, therefore, a lower equity premium, whereas a higher coefficient of relative risk aversion, gamma, implies a higher premium. The premium is finite if alpha > gamma. The observed premium of 5% generates an estimated gamma close to 3, with a 95% confidence interval of 2 to 4. The results are robust to uncertainty about the values of the disaster probability and the equity premium, and can accommodate seemingly paradoxical situations in which the equity premium may appear to be infinite.