Risk Aversion and Intertemporal Substitution in             Macroeconomics
{'Code': '04050100', 'Directorate': {'Abbreviation': 'SBE', 'LongName': 'Direct For Social, Behav & Economic Scie'}, 'Division': {'Abbreviation': 'SES', 'LongName': 'Divn Of Social and Economic Sciences'}}
{'SignBlockName': 'Daniel H. Newlon', 'PO_EMAI': None, 'PO_PHON': None}
Two very important research areas in macroeconomics are                         consumption theory and asset pricing models.  These areas are                   linked by the optimal consumption profile for the the individual,               which can be used for the determination of asset prices.                        However,  when tractable specifications for the preferences of                  the so-called representative agent have been used the                           implications of this theoretic linkage for consumption and asset                prices have been rejected empirically.  Specifically,  the                      assumed utility function does not even begin to replicate the                   behavior of consumers who have both a very strong desire to                     smooth out their consumption profile and a moderate degree of                   risk aversion -- a plausible description according to most of the               available empirical evidence.  The supposition of the research                  undertaken here is that the standard structure of preferences                   used in this estimation is not flexible enough so that the data                 are rejecting  the specification but not the "theory".   What is                proposed,  therefore,  is to employ a new more general class of                 preferences based on the work of Kreps and Porteus,  which will                 allow for the separation of attitudes towards risk from the                     intertemporal substitution effects.  This separation of risk                    aversion from intertemporal substitution will shed new light on                 unexplained empirical regularities and advance our understanding                of existing theories of consumption and asset pricing.                                                                                                          The implications for consumption theory of Kreps-Porteus (KP)                   preferences will first be examined.  The Hall (1978) random walk                hypothesis will be reformulated and tested to confirm that KP                   preferences help account for the sensitivity of consumption to                  current income.  The permanent income hypothesis when both labor                income and interest rates are random will be studied by using a                 KP model of infinitely-lived risk neutral agents to determine the               informational content of changes in income.  The effects on                     consumption volatility of risk persistence will be characterized                and calibrated with empirically estimated risk aversion and                     intertemporal substitution parameters.                                                                                                                          The determinants of asset prices under KP preferences will then                 be analyzed.  The fact that KP preferences theoretically predict                the better empirical performance of the market portfolio based on               the capital asset-pricing model (CAPM) will be assessed                         empirically.  It will be shown that separating risk aversion from               intertemporal substitution helps explain part of the equity                     premium "puzzle".  Finally, the effects of risk aversion and                    intertemporal substitution on the volatility of stock prices when               dividend risk is time-varying will be characterized.
{'FirstName': 'Philippe', 'LastName': 'Weil', 'PI_MID_INIT': None, 'PI_SUFX_NAME': None, 'PI_FULL_NAME': 'Philippe Weil', 'EmailAddress': None, 'NSF_ID': '000118002', 'StartDate': '04/01/1989', 'EndDate': None, 'RoleCode': 'Principal Investigator'}
{'Name': 'National Bureau of Economic Research Inc', 'CityName': 'CAMBRIDGE', 'ZipCode': '021385359', 'PhoneNumber': '6178683900', 'StreetAddress': '1050 MASSACHUSETTS AVE', 'StreetAddress2': None, 'CountryName': 'United States', 'StateName': 'Massachusetts', 'StateCode': 'MA', 'CONGRESSDISTRICT': '05', 'CONGRESS_DISTRICT_ORG': 'MA05', 'ORG_UEI_NUM': 'GT28BRBA2Q49', 'ORG_LGL_BUS_NAME': 'NATIONAL BUREAU OF ECONOMIC RESEARCH INC', 'ORG_PRNT_UEI_NUM': None}
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{'Code': '1320', 'Text': 'Economics'}
{'url': 'https://www.nsf.gov/awardsearch/download?DownloadFileName=1988&All=true', 'xml': '8823040.xml'}