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Asset returns and business cycles in models with investment adjustment costs

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  • Beaubrun-Diant, Kevin E.
  • Tripier, Fabien

Abstract

We show that adjustment cost models with labor supply can explain both asset returns and business cycle facts when adjustment costs penalize the changes of investment. This conclusion stands in contrast to results obtained in the literature with adjustment costs that penalize the changes of capital.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 86 (2005)
Issue (Month): 1 (January)
Pages: 141-146

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Handle: RePEc:eee:ecolet:v:86:y:2005:i:1:p:141-146

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References

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  1. John Y. Campbell, 1998. "Asset Prices, Consumption, and the Business Cycle," NBER Working Papers 6485, National Bureau of Economic Research, Inc.
  2. James H. Stock & Mark W. Watson, 1998. "Business Cycle Fluctuations in U.S. Macroeconomic Time Series," NBER Working Papers 6528, National Bureau of Economic Research, Inc.
  3. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1999. "Habit persistence, asset returns and the business cycles," Working Paper Series WP-99-14, Federal Reserve Bank of Chicago.
  4. Burnside, Craig & Eichenbaum, Martin & Fisher, Jonas D. M., 2004. "Fiscal shocks and their consequences," Journal of Economic Theory, Elsevier, vol. 115(1), pages 89-117, March.
  5. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2001. "Nominal rigidities and the dynamic effects of a shock to monetary policy," Working Paper Series WP-01-08, Federal Reserve Bank of Chicago.
  6. Gomes, Joao F & Yaron, Amir & Zhang, Lu, 2003. "Asset Prices and Business Cycles with Costly External Finance," CEPR Discussion Papers 3927, C.E.P.R. Discussion Papers.
  7. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
  8. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
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Citations

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Cited by:
  1. De Paoli, Bianca & Scott, Alasdair & Weeken, Olaf, 2010. "Asset pricing implications of a New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2056-2073, October.
  2. Groth, Charlotta, 2006. "Calibrating capital adjustment costs in the New-Keynesian model," Economics Letters, Elsevier, vol. 93(1), pages 26-30, October.
  3. Charlotta Groth & Hashmat Khan, 2010. "Investment Adjustment Costs: An Empirical Assessment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1469-1494, December.
  4. Katherine A. Smith, 2011. "Can Financing Constraints Explain The Asset Pricing Puzzles In Production Economies?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 739-765, 08.
  5. Charlotta Groth & Hashmat Khan, 2007. "Investment adjustment costs: evidence from UK and US industries," Bank of England working papers 332, Bank of England.
  6. Dmitriev, Alexandre & Roberts, Ivan, 2013. "The cost of adjustment: On comovement between the trade balance and the terms of trade," Economic Modelling, Elsevier, vol. 35(C), pages 689-700.

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