IDEAS home Printed from https://ideas.repec.org/p/red/sed019/1101.html
   My bibliography  Save this paper

Financial Business Cycles

Author

Listed:
  • Sebastian Di Tella

    (Stanford)

  • Robert Hall

    (STANFORD UNIVERSITY)

Abstract

We propose an equilibrium model of business cycles driven by risk-premium shocks that act like demand shocks for investment. There are no nominal rigidities. Instead, the main short-run friction is that capital and labor cannot be immediately reallocated. This creates a countercyclical labor wedge that depresses employment, investment, and consumption. We model risk-premium shocks in a general way that nests most asset pricing theories, but treat it as an exogenous residual and discipline it with asset- pricing data. We calibrate the model using sectoral employment data, and show that risk-premium shocks create quantitatively realistic business cycles.

Suggested Citation

  • Sebastian Di Tella & Robert Hall, 2019. "Financial Business Cycles," 2019 Meeting Papers 1101, Society for Economic Dynamics.
    • Handle: RePEc:red:sed019:1101
    as

    Download full text from publisher

    File URL: https://red-files-public.s3.amazonaws.com/meetpapers/2019/paper_1101.pdf
    Download Restriction: no
    ---><---

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed019:1101. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.