Examining macroeconomic models through the lens of asset pricing

Jaroslav Borovička and Lars Hansen

Journal of Econometrics, 2014, vol. 183, issue 1, 67-90

Abstract: We develop new methods for representing the asset-pricing implications of stochastic general equilibrium models. We provide asset-pricing counterparts to impulse response functions and the resulting dynamic value decompositions (DVDs). These methods quantify the exposures of macroeconomic cash flows to shocks over alternative investment horizons and the corresponding prices or investors’ compensations. We extend the continuous-time methods developed in Hansen and Scheinkman (2012) and Borovička et al. (2011) by constructing discrete-time, state-dependent, shock-exposure and shock-price elasticities as functions of the investment horizon. Our methods are applicable to economic models that are nonlinear, including models with stochastic volatility.

Keywords: Shock elasticities; Dynamic value decomposition; Risk premia; Perturbation methods; Markov models (search for similar items in EconPapers)
JEL-codes: C52 E44 G12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (29)

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Working Paper: Examining macroeconomic models through the lens of asset pricing (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:183:y:2014:i:1:p:67-90

DOI: 10.1016/j.jeconom.2014.06.010

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