Abstract

https://ssrn.com/abstract=2747383
 


 



Investment-Specific Shocks, Business Cycles, and Asset Prices


Giuliano Curatola


Goethe University Frankfurt - Research Center SAFE

Michael Donadelli


Goethe University Frankfurt - Research Center SAFE

Patrick Grüning


Bank of Lithuania - CEFER; Vilnius University - Faculty of Economics; Research Center SAFE

Christoph Meinerding


Goethe University Frankfurt; Goethe University Frankfurt - Research Center SAFE

March 14, 2016

SAFE Working Paper No. 129

Abstract:     
We introduce long-run investment productivity risk in a two-sector production economy to explain the joint behavior of macroeconomic quantities and asset prices. Long-run productivity risk in both sectors, for which we provide economic and empirical justification, acts as a substitute for shocks to the marginal efficiency of investments in explaining the equity premium and the stock return volatility differential between the consumption and the investment sector. Moreover, adding moderate wage rigidities allows the model to reproduce the empirically observed positive co-movement between consumption and investment growth.

Number of Pages in PDF File: 36

Keywords: General Equilibrium Asset Pricing, Production Economy, Long-Run Risk, Investment-Specific Shocks, Nominal Rigidities

JEL Classification: E32, G12


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Date posted: March 14, 2016  

Suggested Citation

Curatola, Giuliano and Donadelli, Michael and Grüning, Patrick and Meinerding, Christoph, Investment-Specific Shocks, Business Cycles, and Asset Prices (March 14, 2016). SAFE Working Paper No. 129 . Available at SSRN: https://ssrn.com/abstract=2747383

Contact Information

Giuliano Curatola (Contact Author)
Goethe University Frankfurt - Research Center SAFE ( email )
(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Michael Donadelli
Goethe University Frankfurt - Research Center SAFE ( email )
(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Patrick Grüning
Bank of Lithuania - CEFER ( email )
Totoriu g. 4
Vilnius, LT-01121
Lithuania
+370 5 2680 069 (Phone)
HOME PAGE: http://https://www.lb.lt/cefer
Vilnius University - Faculty of Economics ( email )
Sauletekio al. 9 (II building)
Vilnius, LT-10222
Lithuania
HOME PAGE: http://www.ef.vu.lt/
Research Center SAFE ( email )
Goethe University Frankfurt
Theodor-W.-Adorno Platz 3
Frankfurt am Main, D-60629
Germany
HOME PAGE: http://safe-frankfurt.de/research/all-researchers/details/showauthor/patrick-gruening.html
Christoph Meinerding
Goethe University Frankfurt ( email )
Faculty of Economics and Business Administration
Grueneburgplatz 1
Frankfurt am Main, 60323
Germany
+49 69 798 33730 (Phone)
Goethe University Frankfurt - Research Center SAFE ( email )
(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

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