Flexible Labour, Income Effects, and Asset Prices
Economics Discussion Paper Series 851, University of Oxford, Department of Economics, 2018
26 Pages Posted: 5 Jun 2020
Date Written: May 2018
This paper studies how flexible labor decisions affect asset pricing in a Real Business Cycle model. It uses Jaimovich-Rebelo preferences with internal habits in consumption and distinguishes between two income effect channels:
(i) the `habit income effect' channel and
(ii) the `separability income effect' channel.
I find that asset prices are superior when the first channel is strong and the second is weak, this is the case of using GHH preferences with internal habits in consumption.
Keywords: Asset Pricing, Income Effects, Jaimovich-Rebelo Preferences
JEL Classification: E13, E32, E44, G12
Suggested Citation: Suggested Citation