https://macropaperwarehouse.com/authors/andrew-y.-chen/Andrew Y. ChenHugo -- gohugo.ioen-usThu, 01 Jan 2026 00:00:00 +0000https://macropaperwarehouse.com/papers/an-irrelevance-theorem-for-risk-aversion-and-time-varying-risk/Thu, 01 Jan 2026 00:00:00 +0000https://macropaperwarehouse.com/papers/an-irrelevance-theorem-for-risk-aversion-and-time-varying-risk/<p>Chen and Palomino prove a general irrelevance theorem identifying when risk aversion and time-varying risk are irrelevant for key model dynamics in representative-agent macroeconomic models. The central research question is why advances in risk modeling — Epstein-Zin (EZ) recursive preferences, long-run risk, disaster risk — generate rich asset price behavior in endowment economies but fail to produce commensurate effects in standard production economies. The paper resolves this puzzle by characterizing the precise structural conditions under which risk parameters become irrelevant, and provides a taxonomy for how models can escape those conditions.</p>