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Asset pricing implications for business cycle analysis

Author

Listed:
  • Stanley Zin
  • David Backus

    (New York University, Stern School of Bus)

  • Bryan Routledge

Abstract

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.

Suggested Citation

  • Stanley Zin & David Backus & Bryan Routledge, 2006. "Asset pricing implications for business cycle analysis," 2006 Meeting Papers 14, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:14
    as

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    More about this item

    Keywords

    interest rates; equity prices;

    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

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