Abstract

http://ssrn.com/abstract=225326
 
 

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Asset Pricing Lessons for Modeling Business Cycles


Michele Boldrin


University of Minnesota - Twin Cities - Department of Economics; Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Lawrence J. Christiano


Northwestern University; Federal Reserve Bank of Cleveland; Federal Reserve Bank of Chicago; Federal Reserve Bank of Minneapolis; National Bureau of Economic Research (NBER)

Jonas D. M. Fisher


Federal Reserve Bank of Chicago - Economic Research Department

September 1995

NBER Working Paper No. w5262

Abstract:     
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 comovement with output, the model does roughly as well as the standard business cycle model. On two other dimensions, the model's business cycle implications are actually improved. Its enhanced internal propagation allows it to account for the fact that there is positive persistence in output growth, and the model also provides a resolution to the 'excess sensitivity puzzle' for consumption and income. Key features of the model are habit persistence preferences, and a multisector technology with limited intersectoral mobility of factors of production.

Number of Pages in PDF File: 54

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Date posted: July 11, 2000  

Suggested Citation

Boldrin, Michele and Christiano, Lawrence J. and Fisher, Jonas D. M., Asset Pricing Lessons for Modeling Business Cycles (September 1995). NBER Working Paper No. w5262. Available at SSRN: http://ssrn.com/abstract=225326

Contact Information

Michele Boldrin
University of Minnesota - Twin Cities - Department of Economics ( email )
271 19th Avenue South
Minneapolis, MN 55455
United States
612-624-4551 (Phone)
612-624-0209 (Fax)
Universidad Carlos III de Madrid - Department of Economics
Calle Madrid 126
Getafe, 28903
Spain
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Lawrence J. Christiano (Contact Author)
Northwestern University ( email )
2003 Sheridan Road
Evanston, IL 60208
United States
847-491-8231 (Phone)
847-491-7001 (Fax)
Federal Reserve Bank of Cleveland
East 6th & Superior
Cleveland, OH 44101-1387
United States
Federal Reserve Bank of Chicago
230 South LaSalle Street
Chicago, IL 60604
United States
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN 55480
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Jonas D.M. Fisher
Federal Reserve Bank of Chicago - Economic Research Department ( email )
230 South LaSalle Street
Chicago, IL 60604-1413
United States
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