Long-Run Productivity Risk: A New Hope for Production-Based Asset Pricing?

45 Pages Posted: 18 Mar 2008 Last revised: 10 Mar 2017

See all articles by Mariano (Max) Massimiliano Croce

Mariano (Max) Massimiliano Croce

Finance Department, Bocconi University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); University of North Carolina Kenan-Flagler Business School

Date Written: November 9, 2013

Abstract

I examine the intertemporal distribution of US productivity risk and show that the conditional mean of productivity growth is an important determinant of macro quantities and asset prices. After establishing this empirical link, I rationalize it in a production economy featuring long-run productivity risk, Epstein and Zin (1989) preferences, and investment frictions. Both convex capital adjustment costs and convex reallocation costs across consumption and investment produce an annual equity premium as sizeable as in the data.

Keywords: Production, Long-Run Risk, Asset Pricing

JEL Classification: E20, E32, G12

Suggested Citation

Croce, Mariano Massimiliano, Long-Run Productivity Risk: A New Hope for Production-Based Asset Pricing? (November 9, 2013). Journal of Monetary Economics 2014. Available at SSRN: https://ssrn.com/abstract=1106361 or http://dx.doi.org/10.2139/ssrn.1106361

Mariano Massimiliano Croce (Contact Author)

Finance Department, Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://sites.google.com/view/mmcroce/home

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

University of North Carolina Kenan-Flagler Business School ( email )

McColl Builiding
Chapel Hill, NC North Carolina 27599-3490
United States

HOME PAGE: http://https://sites.google.com/view/mmcroce/home

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