Long-run productivity risk: A new hope for production-based asset pricing?

Mariano Massimiliano Croce

Journal of Monetary Economics, 2014, vol. 66, issue C, 13-31

Abstract: The examination of the intertemporal distribution of US productivity risk suggests that the conditional mean of productivity growth is an important determinant of macro quantities and asset prices. After establishing this empirical link, I rationalize it in a production economy featuring long-run productivity risk, Epstein and Zin (1989) preferences, and investment frictions. Both convex capital adjustment costs and convex reallocation costs across consumption and investment produce an annual equity premium as sizeable as in the data.

Keywords: Production; Long-run risk; Asset pricing; Recursive utility (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (127)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:66:y:2014:i:c:p:13-31

DOI: 10.1016/j.jmoneco.2014.04.001

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