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Asset Prices and Asset Quantities


  • Monika Piazzesi
  • Martin Schneider


We propose an organizing framework that determines asset prices by equating household sector asset demand derived from an economic model to the observed supply of assets provided by other sectors. We then use a specific model of household asset demand to decompose historical changes in asset positions into changes in new asset supply and household income, as well as changes in return expectations. Our findings show that supply and income changes are important determinants of the wealth-to-GDP ratio and real estate positions, and return expectations are the key determinant of equity positions. (JEL: G11, G12, E44, E21) (c) 2007 by the European Economic Association.

Suggested Citation

  • Monika Piazzesi & Martin Schneider, 2007. "Asset Prices and Asset Quantities," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 380-389, 04-05.
  • Handle: RePEc:tpr:jeurec:v:5:y:2007:i:2-3:p:380-389

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    References listed on IDEAS

    1. Danthine, Jean-Pierre & Donaldson, John B. & Johnsen, Thore, 1998. "Productivity growth, consumer confidence and the business cycle," European Economic Review, Elsevier, vol. 42(6), pages 1113-1140, June.
    2. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 2000. "The role of investment-specific technological change in the business cycle," European Economic Review, Elsevier, vol. 44(1), pages 91-115, January.
    3. Markus K. Brunnermeier & Jonathan A. Parker, 2005. "Optimal Expectations," American Economic Review, American Economic Association, vol. 95(4), pages 1092-1118, September.
    4. Tauchen, George & Hussey, Robert, 1991. "Quadrature-Based Methods for Obtaining Approximate Solutions to Nonlinear Asset Pricing Models," Econometrica, Econometric Society, vol. 59(2), pages 371-396, March.
    5. Söderlind, Paul, 2005. "C-CAPM without Ex Post Data," SIFR Research Report Series 39, Institute for Financial Research.
    6. Beaudry, Paul & Portier, Franck, 2004. "An exploration into Pigou's theory of cycles," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1183-1216, September.
    7. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    8. Nir Jaimovich & Sergio Rebelo, 2009. "Can News about the Future Drive the Business Cycle?," American Economic Review, American Economic Association, vol. 99(4), pages 1097-1118, September.
    9. Christiano, Lawrence & Motto, Roberto & Rostagno, Massimo & Ilut, Cosmin, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 955, European Central Bank.
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    Cited by:

    1. Paolo Zagaglia, 2013. "Forecasting Long-Term Interest Rates with a General-Equilibrium Model of the Euro Area: What Role for Liquidity Services of Bonds?," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 20(4), pages 383-430, November.
    2. King, Thomas B., 2013. "A Portfolio-Balance Approach to the Nominal Term Structure," Working Paper Series WP-2013-18, Federal Reserve Bank of Chicago.
    3. Nikolai Roussanov, 2010. "Diversification and Its Discontents: Idiosyncratic and Entrepreneurial Risk in the Quest for Social Status," Journal of Finance, American Finance Association, vol. 65(5), pages 1755-1788, October.
    4. Zagaglia, Paolo, 2009. "Forecasting with a DSGE Model of the term Structure of Interest Rates: The Role of the Feedback," Research Papers in Economics 2009:14, Stockholm University, Department of Economics.
    5. David Berger & Joseph Vavra, 2015. "Consumption Dynamics During Recessions," Econometrica, Econometric Society, vol. 83, pages 101-154, January.

    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth


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