Innovation, Product Cycle, and Asset Prices

Ryo Jinnai (ryo.jinnai@r.hit-u.ac.jp)

Review of Economic Dynamics, 2015, vol. 18, issue 3, 484-504

Abstract: This paper constructs a simple endogenous growth model featuring the product cycle, i.e., the transition from monopoly to perfect competition, and studies its implications for both asset market and business cycle statistics. I find that the product cycle is a powerful amplification mechanism; the model incorporating the product cycle is able to generate nearly twice as large an equity premium as the model without the product cycle and, as a result, matches the equity premium data. The current paper thereby contributes to advancing a promising theory on the economic sources of long-run risks, postulating that innovation and R&D cause long-run uncertainties in economic growth. (Copyright: Elsevier)

Keywords: Innovation; Research and development; Product cycle; Imitation; Recursive preference; Long-run risk (search for similar items in EconPapers)
JEL-codes: E30 G12 O30 O41 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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DOI: 10.1016/j.red.2014.10.002

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