Asset Pricing And The Role Of Macroeconomic Volatility
AbstractStandard Real Business Cycle (RBC) models are well known to generate counter-factual asset pricing implications. This paper provides a simple extension to the prior literature where we study an economy that follows a regimes switching process both in the mean and the volatility, in conjunction with Epstein-Zin preferences for the consumers. We provide a detailed theoretical and numerical analysis of the model's predictions. We also show that a reasonable parameterization of our model conveys reasonable financial figures. Furthermore, we provide evidence in support of the necessity to model the decline of macroeconomic risk in this particular class of models.
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Bibliographic InfoPaper provided by CREI Università degli Studi Roma Tre in its series Working Papers with number 0711.
Length: 51 pages
Date of creation: 2011
Date of revision: 2011
Asset Pricing; Real Business Cycle Models; Recursive Preferences; Markov Switching Models;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-19 (All new papers)
- NEP-BEC-2011-12-19 (Business Economics)
- NEP-DGE-2011-12-19 (Dynamic General Equilibrium)
- NEP-FOR-2011-12-19 (Forecasting)
- NEP-MAC-2011-12-19 (Macroeconomics)
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