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Asset Returns, the Business Cycle, and the Labor Market: A Sensitivity Analysis for the German Economy

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  • Burkhard Heer
  • Alfred Maussner

Abstract

We review the labor market implications of recent real-business-cycle models that successfully replicate the empirical equity premium. We document the fact that all models considered in this survey with the exception of Boldrin, Christiano, and Fisher (2001) imply a negative correlation of working hours and output that is not observed empirically, while in their model, the equity premium does not result from variation in the firm value, but from changes in the relative price of two goods. In addition, we calibrate the models with regard to characteristics from the German economy and show that the equity premium is very sensitive with regard to the utility parameters.

Suggested Citation

  • Burkhard Heer & Alfred Maussner, 2011. "Asset Returns, the Business Cycle, and the Labor Market: A Sensitivity Analysis for the German Economy," CESifo Working Paper Series 3391, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3391
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    References listed on IDEAS

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    Cited by:

    1. Günter Bamberg & Michael Krapp, 2016. "Is time consistency compatible with risk aversion?," Review of Managerial Science, Springer, vol. 10(2), pages 195-211, March.

    More about this item

    Keywords

    equity premium; production CAPM; real-business cycle; labor market statistics;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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