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American Economic Journal: Macroeconomics: Vol. 5 No. 3 (July 2013)

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Crises and Recoveries in an Empirical Model of Consumption Disasters

Article 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.5.3.35

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.

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Download Data Set (303.49 KB) | Online Appendix (721.47 KB) | Author Disclosure Statement(s) (22.75 KB)

Authors

Nakamura, Emi (Columbia U)
Steinsson, Jón (Columbia U)
Barro, Robert (Harvard U)
Ursúa, José (Goldman Sachs, New York, NY)

JEL Classifications

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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