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Asset prices in a production network

Francisco Ruge-Murcia

European Economic Review, 2024, vol. 166, issue C

Abstract: The relative importance of sectoral and aggregate productivity shocks in asset pricing is examined using a nonlinear dynamic equilibrium model where heterogeneous sectors interact in a production network. The model accounts for the heterogeneity in sectoral stock returns and endogenously generates conditional heteroskedasticity and fat tails. The equity risk premium is shown to be driven by sectoral shocks – specially to investment good producers and mining – with a limited contribution from the aggregate shock. SMM estimates of the elasticities of substitution between material inputs and between investment goods support the assumption of gross complementarity employed by previous network literature.

Keywords: Multi-sector economy; Input–output; Asset-pricing; Fat tails; Heteroskedasticity (search for similar items in EconPapers)
JEL-codes: E44 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:166:y:2024:i:c:s0014292124000801

DOI: 10.1016/j.euroecorev.2024.104751

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European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

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