Investment-specific shocks, business cycles, and asset prices

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SAFE Working Paper ; No. 129

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: general equilibrium asset pricing ; production economy ; long-run risk ; investment-specific shocks ; nominal rigidities

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Curatola, Giuliano ; Donadelli, Michael ; Grüning, Patrick ; Meinerding, Christoph
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, SAFE - Sustainable Architecture for Finance in Europe
• (where): Frankfurt a. M.
• (when): 2016

Further information

• DOI: doi:10.2139/ssrn.2747383
• Handle: http://hdl.handle.net/10419/129440
• URN: urn:nbn:de:hebis:30:3-395822
• Last update: 10.03.2025, 11:44 AM CET