1994 Larry G. Epstein and Stanley E. Zin "Substitution, Risk Aversion, and the Temporal Behavior..." скачать в хорошем качестве

1994 Larry G. Epstein and Stanley E. Zin "Substitution, Risk Aversion, and the Temporal Behavior..."

Larry G. Epstein & Stanley E. Zin “Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework” Why do financial markets deliver such high returns — and why is consumption so smooth over time? By the late 1980s, macro-finance faced a deep puzzle. Standard consumption-based asset pricing models implied that expected returns were tied tightly to household risk aversion and intertemporal substitution. But empirical evidence suggested a tension: explaining observed equity premiums required implausibly high levels of risk aversion. The problem lay in a restrictive assumption. In standard expected utility models, the degree of risk aversion is mechanically linked to the willingness to substitute consumption over time. Epstein and Zin broke that link. They introduced a recursive utility framework in which risk aversion and intertemporal substitution are distinct parameters. This seemingly technical innovation had profound implications. It allowed economists to model households that are highly risk-averse, yet not extremely willing to shift consumption across time. The contribution reshaped macro-finance. Asset pricing models could now better match observed data without sacrificing theoretical discipline. Recursive preferences became central in models of long-run risk, growth, and macroeconomic volatility. The 1994 Frisch Medal recognized a paper that redefined how preferences are modeled in dynamic economies. By refining the structure of utility itself, Epstein and Zin expanded the empirical reach of macroeconomic theory. From this point forward, modeling expectations and risk required greater flexibility — and deeper structural insight.