Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia

Emmanuel Farhi and Francois Gourio

No 25282, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Real risk-free interest rates have trended down over the past 30 years. Puzzlingly in light of this decline, (1) the return on private capital has remained stable or even increased, creating an increasing wedge with safe interest rates; (2) stock market valuation ratios have increased only moderately; (3) investment has been lackluster. We use a simple extension of the neoclassical growth model to diagnose the nexus of forces that jointly accounts for these developments. We find that rising market power, rising unmeasured intangibles, and rising risk premia, play a crucial role, over and above the traditional culprits of increasing savings supply and technological growth slowdown.

JEL-codes: E0 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-fdg and nep-mac
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Citations: View citations in EconPapers (79)

Published as Emmanuel Farhi & Gourio François, 2018. "Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia," Brookings Papers on Economic Activity, vol 2018(2), pages 147-250.

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Journal Article: Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia (2018)
Working Paper: Accounting for Macro-Finance Trends: Market Power, Intangibles, and Risk Premia (2018)
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