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Recursive preferences and time variation in means and volatilities have become important features of consumption-based asset pricing literature. The introduction of these features into real business cycle (RBC) models has allowed the study of the joint behavior of real and financial variables along the business cycle. As the analysis of asset prices requires computing risk adjustments, simple log-linearization is insufficient. Furthermore, numerical methods such as value-function iteration are computationally expensive and ill-suited for problems with a large number of state variables.
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