dominate. Risk premiums also fluctuate with risk aversion. We shed light on this nexus in a linear-quadratic equilibrium … macrofinance model featuring time variation in inflation-consumption correlation and risk aversion. We obtain analytical solutions … nominal yields, changes in risk aversion drive real yields and act as amplifier on nominal yields. Combining a trend …

capitalists and workers, we show that a higher degree of relative risk aversion can destabilize an economy. In traditional real … business cycle (RBC) theory, a higher degree of relative risk aversion dampens the amplitude of the consumption fluctuations … caused by exogenous shocks through consumption smoothing. However, a higher degree of relative risk aversion combined with a …