Asset pricing implications for business cycle analysis David Backus, Bryan Routledge, and Stanley Zin Although the stochastic growth model has become the benchmark for business cycle analysis, many of its implications for asset prices and returns are grossly counterfactual. For example, the model fails to account for the volatility, persistence, and lead/lag pattern of the short-term interest rate. We build an otherwise standard model in which the representative agent has Kreps-Porteus preference and the technology process is reverse engineered to account for the behavior of interest rates.
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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
14.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:14
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Find related papers by JEL classification: E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy