Asset Pricing and the Propagation of Macroeconomic Shocks

Ivan Jaccard

Journal of the European Economic Association, 2018, vol. 16, issue 2, 436-486

Abstract: This paper considers the implications of habit formation and financial frictions for the propagation of macroeconomic shocks. In a model that is capable of matching asset pricing moments, a short-lived shock that destroys a small fraction of the economy’s stock of pledgeable collateral generates a persistent recession, a stock market crash, and a flight-to-safety effect. This novel mechanism creates a tight link between the asset pricing implications of macroeconomic models and their ability to propagate and amplify the effects of macroeconomic shocks.

JEL-codes: E32 E44 G10 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:16:y:2018:i:2:p:436-486.

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