Some Macro Implications of Risk
AbstractUsing the capital asset pricing model as the financial sector of a conventional rational-expectations macro model, an increase in expected inflation reduces the long-run capital stock, contrary to the usual result. This occurs because the induced fall in real balances increases equity's share in the market, raises equity's beta and discount rate, and reduces investment. Increases in the variance of disturbances to aggregate demand reduce the capital stock, while increases in the variance of inflation raise the stock. A proportionate increase in both variances reduces the captial stock. Copyright 1987 by Ohio State University Press.
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Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 19 (1987)
Issue (Month): 2 (May)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
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- Marco Lossani & Piergiovanna Natale & Patrizio Tirelli, 1997. "Fiscal Policy and Imperfectly Credible Targets: Should We Appoint Expenditure-Conservative Central Bankers?," Working Papers 06, University of Milano-Bicocca, Department of Economics, revised Jul 1997.
- M. Lossani & P. Natale, & P. Tirelli, 1997. "Fiscal Policy and Imperfectly Credible Inflation Targets: Should We Appoint Expenditure-Conservative Central Bankers?," Working Papers 9707, Business School - Economics, University of Glasgow.
- Francis W. Ahking & Stephen M. Miller, 1988. "Models of Business Cycles: A Review Essay," Eastern Economic Journal, Eastern Economic Association, vol. 14(2), pages 197-202, Apr-Jun.
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