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A quartet of asset pricing models in nominal and real economies

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  • Wei, Chao

Abstract

This paper studies the equity premium implications of a canonical New Keynesian model with investment. We find that the presence of a time-varying marginal cost dampens the expansionary impact of a positive technology shock. With a given fraction of firms standing ready to satisfy demand at predetermined prices, the variations in the marginal utility of consumption attributed to technology shocks can easily be smoothed. Thus, technology shocks contribute little to the equity premium. Under a standard monetary policy rule, the real effect of monetary policy shocks is too weak and short-lived to generate a reasonable equity premium.

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  • Wei, Chao, 2009. "A quartet of asset pricing models in nominal and real economies," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 154-165, January.
    • Handle: RePEc:eee:dyncon:v:33:y:2009:i:1:p:154-165
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    Cited by:

    1. Dumas, Bernard & Savioz, Marcel René, 2020. "A Theory of the Nominal Character of Stock Securities," CEPR Discussion Papers 15507, C.E.P.R. Discussion Papers.
    2. Ivan Jaccard, 2007. "Asset Pricing, Habit Memory, and the Labor Market," Swiss Finance Institute Research Paper Series 07-23, Swiss Finance Institute, revised Nov 2007.
    3. Challe, Edouard & Giannitsarou, Chryssi, 2014. "Stock prices and monetary policy shocks: A general equilibrium approach," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 46-66.
    4. Rahul Nath, 2018. "Flexible Labour, Income Effects, and Asset Prices," Economics Series Working Papers 851, University of Oxford, Department of Economics.
    5. Jaccard, Ivan, 2018. "Stochastic discounting and the transmission of money supply shocks," Working Paper Series 2174, European Central Bank.
    6. Christoffel, Kai & Kilponen, Juha & Jaccard, Ivan, 2011. "Government bond risk premia and the cyclicality of fiscal policy," Working Paper Series 1411, European Central Bank.
    7. Chao Wei, 2010. "Inflation and Stock Prices: No Illusion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2‐3), pages 325-345, March.
    8. Horvath, Roman & Kaszab, Lorant & Marsal, Ales, 2021. "Equity premium and monetary policy in a model with limited asset market participation," Economic Modelling, Elsevier, vol. 95(C), pages 430-440.
    9. Katsuhiro Oshima, 2021. "Heterogeneous beliefs, monetary policy, and stock price volatility," Annals of Finance, Springer, vol. 17(1), pages 79-125, March.
    10. Christoffel, Kai & Jaccard, Ivan & Kilponen, Juha, 2013. "Welfare and bond pricing implications of fiscal stabilization policies," Research Discussion Papers 32/2013, Bank of Finland.
    11. Peng, Yulei & Zervou, Anastasia, 2022. "Monetary policy rules and the equity premium in a segmented markets model," Journal of Macroeconomics, Elsevier, vol. 73(C).
    12. Katsuhiro Oshima, 2019. "Heterogeneous Beliefs, Monetary Policy, and Stock Price Volatility," KIER Working Papers 1013, Kyoto University, Institute of Economic Research.
    13. Rahul Nath, 2018. "Equity Pricing New Keynesian Models with Nominal Rigidities and Investment," Economics Series Working Papers 850, University of Oxford, Department of Economics.
    14. Christoffel, Kai & Jaccard, Ivan & Kilponen, Juha, 2013. "Welfare and bond pricing implications of fiscal stabilization policies," Bank of Finland Research Discussion Papers 32/2013, Bank of Finland.
    15. repec:zbw:bofrdp:2013_032 is not listed on IDEAS

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