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Relative Risk Aversion and Power‐Law Distribution of Macroeconomic Disasters
Author(s) -
Brzezinski Michal
Publication year - 2015
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2402
Subject(s) - econometrics , economics , risk aversion (psychology) , distribution (mathematics) , estimation , power (physics) , power law , mathematical economics , statistics , mathematics , expected utility hypothesis , physics , thermodynamics , mathematical analysis , management
Summary The coefficient of relative risk aversion is notoriously difficult to estimate. Recently, Barro and Jin (On the size distribution of macroeconomic disasters, Econometrica 2011; 79 (3): 434–455) have come up with a new estimation approach that fits a power‐law model to the tail of distribution of macroeconomic disasters. We show that their results can be successfully replicated using a more refined power‐law fitting methodology and a more comprehensive dataset. Copyright © 2014 John Wiley & Sons, Ltd.