Investment-Specific Shocks, Business Cycles, and Asset Prices

Giuliano Curatola, Michael Donadelli, Patrick Gruning () and Christoph Meinerding
Additional contact information
Patrick Gruning: Bank of Lithuania & Faculty of Economics, Vilnius University

No 36, Bank of Lithuania Working Paper Series from Bank of Lithuania

Abstract: This paper proposes and tests a new source of time variation in real investment opportunities, namely long-run shocks to the productivity of the investment sector, to explain the joint behavior of macroeconomic quantities and asset prices. A two-sector general equilibrium model with long-run investment shocks and wage rigidities produces both positive co-movement among key macroeconomic variables and a sizable return volatility differential between the investment and consumption sector. Moreover, positive long-run investment shocks are associated with low marginal utility and thus command a positive risk premium. We test our model using data on sectoral TFP and find evidence in support of our theoretical predictions.

Keywords: General Equilibrium Asset Pricing; Production Economy; Long-Run Risk; Investment-Specific Shocks; Wage Rigidities. (search for similar items in EconPapers)
JEL-codes: E32 G12 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2016-11-30
New Economics Papers: this item is included in nep-dge, nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.lb.lt/en/publications/no-36-investment ... les-and-asset-prices Full text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Working Paper: Investment-specific shocks, business cycles, and asset prices (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lie:wpaper:36

Access Statistics for this paper

More papers in Bank of Lithuania Working Paper Series from Bank of Lithuania Bank of Lithuania Gedimino pr. 6, LT-01103 Vilnius, Lithuania. Contact information at EDIRC.
Bibliographic data for series maintained by Aurelija Proskute ().