Crises and Recoveries in an Empirical Model of Consumption Disasters
- (pp. 35-74)
Abstract
We estimate an empirical model of consumption disasters using new data on consumption for 24 countries over more than 100 years, and study its implications for asset prices. The model allows for partial recoveries after disasters that unfold over multiple years. We find that roughly half of the drop in consumption due to disasters is subsequently reversed. Our model generates a sizable equity premium from disaster risk, but one that is substantially smaller than in simpler models. It implies that a large value of the intertemporal elasticity of substitution is necessary to explain stock-market crashes at the onset of disasters.Citation
Nakamura, Emi, Jón Steinsson, Robert Barro, and José Ursúa. 2013. "Crises and Recoveries in an Empirical Model of Consumption Disasters." American Economic Journal: Macroeconomics, 5 (3): 35-74. DOI: 10.1257/mac.5.3.35Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G12 Asset Pricing; Trading volume; Bond Interest Rates
- G14 Information and Market Efficiency; Event Studies
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