Young, Old, Conservative and Bold: The Implicationsof Heterogeneity and Finite Lives for Asset Pricing

We present a parsimonious and tractable general equilibrium model featuring acontinuum of overlapping generations, as in Blanchard (1985). In addition, we assumethat agents have standard utilities exhibiting constant relative risk aversion and canbe born with differing risk aversions and endowments. We show that equilibrium assetprices are determined as if the economy was populated by a single representative agentwith time-varying risk aversion that follows a stationary process. Moreover, the risklessrate is low and non-volatile.[...]