Asset pricing implications of a New Keynesian model

Bianca De Paoli (), Alasdair Scott and Olaf Weeken
Additional contact information
Alasdair Scott: Bank of England
Olaf Weeken: Bank of England

No 358, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: To match the stylised facts of goods and labour markets, the canonical New Keynesian model augments the optimising neoclassical growth model with nominal and real rigidities. We ask what the implications of this type of model are for asset prices. Using a second-order numerical solution to the model, we examine bond and equity returns, the equity risk premium, and the behaviour of the real and nominal term structure. We catalogue the factors that are most important for determining the size of risk premia and the slope and level of the yield curve. In a world of technology shocks only, increasing the degree of real rigidities raises risk premia and increasing nominal rigidities reduces risk premia. In a world of monetary policy shocks only, both real and nominal rigidities raise risk premia. The results indicate that the implications of the New Keynesian model for average asset returns depend critically on the characterisation of shocks hitting the model economy

Keywords: Asset Prices; New Keynesian; Rigidities (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 G12 (search for similar items in EconPapers)
Date: 2006-07-04
References: Add references at CitEc
Citations: View citations in EconPapers (9)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Asset pricing implications of a New Keynesian model (2010)
Working Paper: Asset pricing implications of a new keynesian model (2010)
Working Paper: Asset pricing implications of a New Keynesian model (2007)
Working Paper: Asset pricing implications for a New Keynesian model (2007)
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:sce:scecfa:358

Access Statistics for this paper

More papers in Computing in Economics and Finance 2006 from Society for Computational Economics Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().