Explaining bond and equity premium puzzles jointly in a DSGE model

Arbeitspapier

We introduce costly firm-entry a la Bilbiie et al. (2012) into a New Keynesian model with Epstein-Zin preferences and show that it can jointly account for a high mean value of bond and equity premium without compromising the fit of the model to first and second moments of key macroeconomic variables. In the standard New Keynesian model without entry it is easy to generate inflation risks on long-term nominal bonds when placing high coefficient on the output gap in the Taylor rule. Our model is able to generate inflation risks when the coefficient on the output gap is small. In the entry model real risks are lower and inflation risks are ceteris paribus higher than in the standard New Keynesian model without entry due to the appearance of new varieties that help households smooth their consumption better.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: MNB Working Papers ; No. 2015/1

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Aggregative Models: Neoclassical ; Price Level; Inflation; Deflation ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; Fiscal Policy
• Thema: firm entry ; zero-coupon bond ; equity premium ; nominal term premium ; third-order approximation ; New Keynesian ; Epstein-Zin preferences

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Kaszab, Lorant ; Marsal, Ales
• Ereignis: Veröffentlichung
• (wer): Magyar Nemzeti Bank
• (wo): Budapest
• (wann): 2015

Weitere Informationen

• Handle: http://hdl.handle.net/10419/146622
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ