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

  • Burkhard Heer
  • Alfred Maussner

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.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-03/cesifo1_wp3391.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3391.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3391
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  1. Plosser, Charles I, 1989. "Understanding Real Business Cycles," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 51-77, Summer.
  2. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
  3. AMBLER, Steve & CARDIA, Emanuela & ZIMMERMANN, Christian, 2000. "International Business Cycles: What Are the Facts?," Cahiers de recherche 2000-05, Universite de Montreal, Departement de sciences economiques.
  4. De Paoli, Bianca & Scott, Alasdair & Weeken, Olaf, 2010. "Asset pricing implications of a New Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 34(10), pages 2056-2073, October.
  5. repec:ebl:ecbull:v:7:y:2005:i:2:p:1-8 is not listed on IDEAS
  6. 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.
  7. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  8. Yongsung Chang & Joao Gomes & Frank Schorfheide, 2002. "Learning by Doing as a Propagation Mechanism," Macroeconomics 0204002, EconWPA.
  9. Takashi Kano & Hafedh Bouakez, 2005. "Learning-by-doing or Habit Formation?," Computing in Economics and Finance 2005 126, Society for Computational Economics.
  10. Burkhard Heer & Alfred Maussner, 2004. "Computation of Business Cycle Models: A Comparison of Numerical Methods," CESifo Working Paper Series 1207, CESifo Group Munich.
  11. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
  12. Susanto Basu & Alan M. Taylor, 1999. "Business Cycles in International Historical Perspective," NBER Working Papers 7090, National Bureau of Economic Research, Inc.
  13. Kevin E. Beaubrun-Diant, 2005. "Can a Time-to-Plan Model explain the Equity Premium Puzzle," Economics Bulletin, AccessEcon, vol. 7(2), pages 1-8.
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