Introducing Financial Assets into Structural Models
AbstractThis paper reviews extensively the literature on asset pricing and builds a structural dynamic general equilibrium model with financial assets. We obtain the policy function of the calibrated model and approximate it up to third order. We derive asset pricing and various premiums conditions up to the third order, meaning that returns depend on the first three conditional moments. We obtain a hypothetic yield curve whose curvature increases with the order of approximation because of premiums. In addition, impulse responses of various fundamental shocks illustrate the effects on the level and slope of bond yields with several maturities and on break-even inflation. Important shocks are technology and inflation target shocks.
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Bibliographic InfoPaper provided by Central Bank of Chile in its series Working Papers Central Bank of Chile with number 625.
Date of creation: May 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-06-18 (All new papers)
- NEP-CBA-2011-06-18 (Central Banking)
- NEP-DGE-2011-06-18 (Dynamic General Equilibrium)
- NEP-MAC-2011-06-18 (Macroeconomics)
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