Showing 1 - 10 of 112
We examine the validity of a macroeconomic version of the Modigliani-Miller theorem. For this purpose, we develop a general equilibrium model with two production sectors, risk-averse households and financial intermediation by banks. Banks are funded by deposits and (outside) equity and monitor...
Persistent link: https://www.econbiz.de/10011084423
We derive new estimates of total wealth, the returns on total wealth, and the wealth effect on consumption. We estimate the prices of aggregate risk from bond yields and stock returns using a no-arbitrage model. Using these risk prices, we compute total wealth as the price of a claim to...
Persistent link: https://www.econbiz.de/10011083953
-markets model, and the Sharpe-Lintner-Mossin Capital Asset Pricing Model (CAPM). This framework enabled us to measure how far our … discovered swift convergence towards equilibrium prices of Arrow and Debreu's model or the CAPM. This discovery is significant … walk, in favour of stochastic convergence towards CAPM and Arrow-Debreu equilibrium. …
Persistent link: https://www.econbiz.de/10005662411
This Paper analyses the effect of dynamic capital structure adjustments on credit risk. Firms may optimally adjust their leverage in response to stochastic changes in firm value. It is shown that capital structure dynamics lower optimal initial leverage ratios but increase both fair credit...
Persistent link: https://www.econbiz.de/10005123682
This paper studies the pricing of financial assets in a complete general equilibrium set-up. We begin with an asset pricing model à la Lucas grafted on a standard Real Business Cycles model. We provide a new decentralized interpretation of such a model in which firms make meaningful investment...
Persistent link: https://www.econbiz.de/10005504725
Futures markets are a potentially valuable source of information about market expectations. Exploiting this information has proved difficult in practice, because the presence of a timevarying risk premium often renders the futures price a poor measure of the market expectation of the price of...
Persistent link: https://www.econbiz.de/10011083547
Standard representative-agent models have difficulty in accounting for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing underlies virtually all modern asset-pricing puzzles. The correlation puzzle arises because these...
Persistent link: https://www.econbiz.de/10011083589
This paper analyzes the impact of strained government finances on macroeconomic stability and the transmission of fiscal policy. Using a variant of the model by Curdia and Woodford (2009), we study a 'sovereign risk channel' through which sovereign default risk raises funding costs in the...
Persistent link: https://www.econbiz.de/10011083641
Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this "sovereign risk channel." The model is calibrated to the euro area...
Persistent link: https://www.econbiz.de/10011084472
The risk premium in the US stock market has fallen far below its historic level, which Shiller (2000) attributes to a bubble driven by psychological factors. As an alternative explanation, we point out that the observed risk premium may be reduced by one-sided intervention policy on the part of...
Persistent link: https://www.econbiz.de/10005067591