Asset Prices and Time-Varying Risk

International Monetary Fund

No 1988/042, IMF Working Papers from International Monetary Fund

Abstract: Observers have often characterized asset markets as being subject to periods of tranquility and periods of turbulence. Until recently, however, researchers were unable to produce closed-form asset pricing formulas in a model environment of time-varying risk. Some work by Abel provided us with the insights needed to produce such formulas. This paper gives a exposition of how to develop the formulas in an environment where the formulas may by obtained using a simple extension of standard tools. While the paper is intended mainly as an exposition of new work, it also contains a report on the asset market effect of fiscal reform. It is found that entering a period of weak coordination between government spending and taxing (tax rate) policy is good for stock prices.

Keywords: WP; government spending; marginal utility; asset market impact; asset-market effect; asset market applicability; asset market effect; government expenditure policy; goods market equilibrium; Asset prices; Stock markets; Securities markets (search for similar items in EconPapers)
Pages: 26
Date: 1988-01-01
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1988/042

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