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Can a Time-to-Plan Model explain the Equity Premium Puzzle

  • Kevin E. Beaubrun-Diant

    ()

    (MODEM-CNRS)

This paper proposes a quantitative evaluation of the time-to-plan technology in order to investigate up to which point this mechanism could constitute a satisfactory alternative to the well-known capital adjustment cost technology. We show that the time-to-plan mechanism reproduces a realistic risk-free rate, whilst being capable of generating a substantial equity premium. About the model's explanation of the business cycle, it turns out that the model predicts a perfectly positive and significant correlation between employment and output.

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File URL: http://www.accessecon.com/pubs/EB/2005/Volume7/EB-04G10006A.pdf
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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 7 (2005)
Issue (Month): 2 ()
Pages: 1-8

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Handle: RePEc:ebl:ecbull:eb-04g10006
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  1. Boldrin, M. & Christiano, L.J. & Fischer, J.D.M., 1996. "Asset Pricing Lessons for Modeling Business Cycles," Papers 268, Banca Italia - Servizio di Studi.
  2. Michele Boldrin & Lawrence J. Christiano & Jonas D. M. Fisher, 2000. "Habit persistence, asset returns and the business cycle," Staff Report 280, Federal Reserve Bank of Minneapolis.
  3. Lawrence J. Christiano, 1998. "Solving dynamic equilibrium models by a method of undetermined coefficients," Working Paper 9804, Federal Reserve Bank of Cleveland.
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