Nominal Rigidities and Asset Pricing in New Keynesian Monetary Models

Posted: 31 Jan 2005

See all articles by Francesco Sangiorgi

Francesco Sangiorgi

Frankfurt School of Finance & Management

Sergio Santoro

Universitat Pompeu Fabra

Date Written: February 15, 2005

Abstract

The aim of this paper is to inspect the asset pricing properties of basic New Keynesian monetary models. Because of monetary nonneutrality, expected returns on assets must pay a risk premium not only on technology shocks, as in RBC models, but also on monetary shocks. We provide closed form solutions for risk premia and show how the equity premium depends on the type of nominal rigidity considered. In particular, a model with staggered wages is shown to perform better than a model with staggered prices in the sense of generating a higher equity premium than in the benchmark flexible equilibrium. The model also produces unconditional pricing implications to be tested empirically.

Keywords: Asset pricing in production economies, nominal rigidities

JEL Classification: E44, G12

Suggested Citation

Sangiorgi, Francesco and Santoro, Sergio, Nominal Rigidities and Asset Pricing in New Keynesian Monetary Models (February 15, 2005). EFA 2005 Moscow Meetings Paper, Available at SSRN: https://ssrn.com/abstract=657321 or http://dx.doi.org/10.2139/ssrn.657321

Francesco Sangiorgi (Contact Author)

Frankfurt School of Finance & Management ( email )

Adickesallee 34
Frankfurt am Main, 60322
Germany

Sergio Santoro

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas 25-27
08005 Barcelona
Spain

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