The Return to Capital and the Business Cycle

Paul Gomme, B Ravikumar and Peter Rupert ()

No 801, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: Real business cycle models have difficulty replicating the volatility of S&P 500 returns. This fact should not be surprising since the RBC theory suggests a measurement of the return of aggregate capital, not stock market returns. We construct a quarterly time series of the after-tax return to business capital. Its volatility is considerably smaller than that of S&P 500 returns. Our benchmark model captures almost 40% of the volatility in the return to capital relative to the volatility of output.

Keywords: Asset returns; Business cycles (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 2006
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Related works:
Journal Article: The Return to Capital and the Business Cycle (2011)
Working Paper: The Return to Capital and the Business Cycle (2010)
Working Paper: The Return to Capital and the Business Cycle (2007)
Working Paper: The return to capital and the business cycle (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:801

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