This paper shows that non-linearities and non-normalities are important to generate empirically observed stylized facts of the risk premium. These key features can explain the equity premium puzzle and the time-varying behavior of the risk premium. We employ explicit solutions of dynamic stochastic general equilibrium (DSGE) models. It is shown that non-linearities in a prototype DSGE model can generate time-varying risk premia, while non-normalities can account for the observed risk-premium puzzle by drawing from the Barro-Rietz 'rare disaster hypothesis'.

Speaker

Olaf Posch

Universität Aarhus

Date

07.05.2009 | 16:00 - 17:30 Uhr

Event Location

ZEW, L 7,1 D-68161 Mannheim

Room

Straßburg