Habit Persistence, Asset Returns, and the Business Cycle

Lawrence Christiano, Michele Boldrin and Jonas Fisher

American Economic Review, 2001, vol. 91, issue 1, 149-166

Abstract: Two modifications are introduced into the standard real-business-cycle model: habit preferences and a two-sector technology with limited intersectoral factor mobility. The model is consistent with the observed mean risk-free rate, equity premium, and Sharpe ratio on equity. In addition, its business-cycle implications represent a substantial improvement over the standard model. It accounts for persistence in output, comovement of employment across different sectors over the business cycle, the evidence of "excess sensitivity" of consumption growth to output growth, and the "inverted leading-indicator property of interest rates," that interest rates are negatively correlated with future output.

JEL-codes: E32 E44 O41 (search for similar items in EconPapers)
Date: 2001
Note: DOI: 10.1257/aer.91.1.149
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Citations: View citations in EconPapers (708)

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Related works:
Working Paper: Habit persistence, asset returns and the business cycle (2000)
Working Paper: Habit persistence, asset returns and the business cycles (1999)
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