Knut K. Aase
Knut K. Aase: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Abstract: We study the recursive model of Epstein and Zin. We use directional derivatives to derive the model, and calibrate to the data of Mehra and Prescott (1985). By assuming that we can view income streams as dividends of some shadow asset, the model is valid if the market portfolio is expanded to include the new asset. Since the latter is not traded, the return to the wealth portfolio is not readily observable or estimable from available data. We demonstrate that we can get a good impression of how the model fares, by calibrating under various assumptions. As the return on the wealth portfolio decreases, the estimated impatience rate decreases to reasonable values, while the risk aversion and the EIS parameter estimates are both plausible. The results are promising for the recursive model.
26 pages, First version: May 15, 2013. Revised: March 25, 2015.
Questions (including download problems) about the papers in this series should be directed to Stein Fossen ()
Report other problems with accessing this service to Sune Karlsson ().
This page generated on 2018-01-23 23:36:07.