Asset Prices in Affine Real Business Cycle Models

42 Pages Posted: 1 Feb 2011

See all articles by Aytek Malkhozov

Aytek Malkhozov

Queen Mary University of London - School of Economics and Finance

Maral Shamloo

London School of Economics & Political Science (LSE) - Department of Economics

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Date Written: November 2010

Abstract

We develop a tractable way to solve for equilibrium quantities and asset prices in a class of real business cycle models featuring Epstein-Zin preferences and affine dynamics for productivity growth and volatility. The method relies on log-linearization and exploits the log-normality of all the quantities. It is an easy substitute for more involved numerical techniques, such as higher order perturbation methods, and allows for easy implementation and analytical results. We show explicitly the link with perturbation techniques and find that the quantitative difference between the two is insignificant for several models of interest.

Keywords: Asset prices, Business cycles, Economic models, External shocks, Productivity

Suggested Citation

Malkhozov, Aytek and Shamloo, Maral, Asset Prices in Affine Real Business Cycle Models (November 2010). IMF Working Paper No. 10/249, Available at SSRN: https://ssrn.com/abstract=1750738

Aytek Malkhozov

Queen Mary University of London - School of Economics and Finance ( email )

Mile End Road
London, London E1 4NS
United Kingdom

Maral Shamloo (Contact Author)

London School of Economics & Political Science (LSE) - Department of Economics ( email )

Houghton Street
London WC2A 2AE
United Kingdom

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