The neoclassical growth model is extended to include costly intermediated borrowing and lending between households. This is an important extension as substantial resources are used in intermediating the large amount of borrowing and lending between households. In 2007, in the United States, the...

The neoclassical growth model is extended to include costly intermediated borrowing and lending between households. This is an important extension as substantial resources are used in intermediating the large amount of borrowing and lending between households. In 2007, in the United States, the...

A large amount of intermediated borrowing and lending takes place between households. The average difference in these rates is over 2 percent. In this paper, we develop a model economy that displays these facts and matches not only the returns on assets but also their quantities. The...

The difference between average borrowing and lending rates in the United States is over 2 percent. In spite of this large difference, there is over 1.7 times GNP in 2007 of intermediated borrowing and lending between households. In this paper a model is developed consistent with these facts. The...

Restrictions that general equilibrium theory place upon average returns are found to be strongly violated by the U.S. data in the 1889–1978 period. This result is robust to model specification and measurement problems. We conclude that equilibrium models which are not Arrow-Debreu economies...

This paper is a critical review of the literature on the "equity premium puzzle[equal, rising dots]. The puzzle, as originally articulated more than fifteen years ago, underscored the inability of the standard paradigm of Economics and Finance to explain the magnitude of the risk premium, that...