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Improving Public Equity Markets? No Pain, No Gain

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  • Katya Kartashova

Abstract

This paper quantifies the effects of improving public equity markets on macroeconomic aggregates and welfare. I use an open-economy extension of Angeletos (2007), where entrepreneurs face idiosyncratic productivity risk in privately held firms. They can diversify by investing in publicly traded firms, but their operation is costly. These costs can vary across different economies. To quantify the effect of the differences and impose discipline, I parameterize the model using Ecuadorian and Chilean firm-level and aggregate data. Lower equity costs result in improvement of economic aggregates, but have differential welfare effects. Entrepreneurs suffer a loss, while workers gain.

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  • Katya Kartashova, 2014. "Improving Public Equity Markets? No Pain, No Gain," Staff Working Papers 14-41, Bank of Canada.
    • Handle: RePEc:bca:bocawp:14-41
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    Cited by:

    1. Katya Kartashova, 2014. "Private Equity Premium Puzzle Revisited," American Economic Review, American Economic Association, vol. 104(10), pages 3297-3334, October.

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    More about this item

    Keywords

    Development economics; Financial Institutions; Financial markets;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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