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Stock market prices are procyclical, while investment good prices are countercyclical. A real business cycle model calibrated to these observations implies that 75% of the cyclical variation in aggregate output is due to an investment-specific technology shock, while the rest is due to an...
Persistent link: https://www.econbiz.de/10005420011
We examine asset prices and returns in the context of a version of the pure exchange economy studied in Lucas (1978) and Mehra and Prescott (1985). Our purpose is to identify the key channels by which changes in preferences affect the equity premium and the risk free rate and to develop...
Persistent link: https://www.econbiz.de/10005724369
A description and comparison of several algorithms for approximating the solution to a model in which inequality constraints occasionally bind. Their performance is evaluated using various parameterizations of the one-sector growth model with irreversible investment.
Persistent link: https://www.econbiz.de/10005729033
The marginal cost of plant capacity, measured by the price of equity, is significantly procyclical. Yet, the price of a major intermediate input into expanding plant capacity, investment goods, is countercyclical. The ratio of these prices is Tobin's q. Following convention, we interpret the...
Persistent link: https://www.econbiz.de/10005712353
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...
Persistent link: https://www.econbiz.de/10005726713
We describe and compare several algorithms for approximating the solution to a model in" which inequality constraints occasionally bind. Their performance is evaluated and compared" using various parameterizations of the one sector growth model with irreversible investment. We" develop...
Persistent link: https://www.econbiz.de/10012472605
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...
Persistent link: https://www.econbiz.de/10012473613
This paper illustrates a particular limited information strategy for assessing the empirical plausibility of alternative quantitative general equilibrium business cycle models. The basic strategy is to test whether a model economy can account for the response of actual economy to an exogenous...
Persistent link: https://www.econbiz.de/10005520012
We study the behavior of output, employment, consumption, and investment in Germany during the Great Depression of 1928-37. In this time period, real wages were countercyclical, and productivity and fiscal policy were procyclical. We use the neoclassical growth model to investigate how much...
Persistent link: https://www.econbiz.de/10005419926
This paper investigates the response of real wages and hours worked to an exogenous shock in fiscal policy. We identify this shock with the dynamic response of government purchases and tax rates to an exogenous increase in military purchases. The fiscal shocks that we isolate are characterized...
Persistent link: https://www.econbiz.de/10005419950