EconPapers    
Economics at your fingertips  
 

Habit persistence, asset returns and the business cycle

Michele Boldrin (), Lawrence Christiano () and Jonas Fisher ()

No 280, Staff Report from Federal Reserve Bank of Minneapolis

Abstract: We introduce two modifications into the standard real business cycle model: habit persistence preferences and limitations on intersectoral factor mobility. The resulting model is consistent with the observed mean equity premium, mean risk free rate and Sharpe ratio on equity. The model does roughly as well as the standard real business cycle model with respect to standard measures. On four other dimensions its business cycle implications represent a substantial improvement. It accounts for (i) persistence in output, (ii) the observation that employment across different sectors moves together over the business cycle, (iii) the evidence of ‘excess sensitivity’ of consumption growth to output growth, and (iv) the ‘inverted leading indicator property of interest rates,’ that high interest rates are negatively correlated with future output.

Keywords: Business cycles - Econometric models; Monetary policy (search for similar items in EconPapers)
Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (164) Track citations by RSS feed

Downloads: (external link)
http://minneapolisfed.org/research/common/pub_detail.cfm?pb_autonum_id=827
http://minneapolisfed.org/research/sr/sr280.pdf (application/pdf)

Related works:
Journal Article: Habit Persistence, Asset Returns, and the Business Cycle (2001) Downloads
Working Paper: Habit persistence, asset returns and the business cycles (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmsr:280

Ordering information: This working paper can be ordered from
http://www.minneapolisfed.org/pubs/

Access Statistics for this paper

More papers in Staff Report from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Jannelle Ruswick ().

 
Page updated 2019-10-21
Handle: RePEc:fip:fedmsr:280