Asset prices and rents in a GE model with imperfect competition
AbstractThis paper analyses the general equilibrium effects on asset valuation and capital accumulation of an exogenous drop in the rate of return required by investors in a model of production with imperfectly competitive product markets. The model improves substantially on the standard perfectly competitive neo-classical framework, by dissociating the behavior of marginal and average q. It tracks more closely current observed data on the ratio of stock-market value to the economy's capital base, while uncoupling this valuation ratio from investment behavior. The model does so by assuming that asset holders price not only the future marginal productivity of capital, but also the value of monopoly franchises, which arise from the interplay of market power and returns to scale.
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Bibliographic InfoPaper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2003-60.
Date of creation: 2003
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-01-18 (All new papers)
- NEP-FIN-2004-01-18 (Finance)
- NEP-MAC-2004-01-18 (Macroeconomics)
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