On the Fluctuations in Consumption and Market Returns in the Presence of Labour and Human Capital: An Equilibrium Analysis

We examine the effects of human capital on consumption, stock market, and other fluctuations in a general equilibrium continuous-time model. A representative consumer-worker-investor derives utility from consumption and leisure. A representative firm demands labour as the sole input to a stochastic produciton technology, driven by general (possibly non-multiplicative) shocks. For Cobb-Douglas utility and multiplicative shocks, labour is non-stochastic, and consupmtion and stock market volatility are equated, as under no human capital.