Asset Pricing Lessons for Modeling Business Cycles

Michele Boldrin, Lawrence Christiano and Jonas Fisher

No 5262, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a model which accounts for the observed equity premium and average risk free rate, without implying counterfactually high risk aversion. The model also does well in accounting for business cycle phenomena. With respect to the conventional measures of business cycle volatility and comovement with output, the model does roughly as well as the standard business cycle model. On two other dimensions, the model's business cycle implications are actually improved. Its enhanced internal propagation allows it to account for the fact that there is positive persistence in output growth, and the model also provides a resolution to the 'excess sensitivity puzzle' for consumption and income. Key features of the model are habit persistence preferences, and a multisector technology with limited intersectoral mobility of factors of production.

JEL-codes: E (search for similar items in EconPapers)
Date: 1995-09
Note: AP EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (50)

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Related works:
Working Paper: Asset Pricing Lessons for Modeling Business Cycles (1996)
Working Paper: Asset pricing lessons for modeling business cycles (1995)
Working Paper: Asset pricing lessons for modeling business cycles (1995)
Working Paper: Asset pricing lessons for modeling business cycles (1995)
Working Paper: Asset Pricing Lessons for Modeling Business Cycles (1995)
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