Asset pricing, habit memory, and the labor market
AbstractThis article studies the asset pricing and the business cycle implications of habit formation in a production economy with capital adjustment costs and endogenous labor supply. A specification of internal habit in the mix of consumption and leisure which minimizes the wealth effect on labor supply is introduced into an otherwise standard real business cycle model. This mechanism enhances the model’s ability to explain asset pricing puzzles. JEL Classification: G12, E32, J22
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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 1163.
Date of creation: Mar 2010
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Other versions of this item:
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-11 (All new papers)
- NEP-DGE-2010-04-11 (Dynamic General Equilibrium)
- NEP-LAB-2010-04-11 (Labour Economics)
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