Asset Pricing, Habit Memory, and the Labor Market

Ivan Jaccard

No 07-23, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The main contribution of this study is to develop a dynamic general equilibrium model linking financial markets to the real economy. In search of a unified framework, this study finds that a model with internal habit memory is able to generate asset pricing and business cycle predictions that are strongly supported by the data. In comparison to solutions present in the literature, the equity premium puzzle can be resolved in a model also able to explain the dynamics of hours worked and real wages. In addition, the proposed mechanism avoids the generation of excessive risk-free rate variations and amplifies the effects of technology shocks.

Keywords: business cycle; equity premium puzzle; adjustment costs; habit formation; labor market. (search for similar items in EconPapers)
JEL-codes: E10 E20 G12 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2007-07, Revised 2007-11
New Economics Papers: this item is included in nep-dge and nep-mac
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Asset pricing, habit memory, and the labor market (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0723

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