The Adjusted Solow Residual and Asset Returns (Subsequently published in "Eastern Economic Journal", 2007, 33,(2), pp. 231-255. )
The purpose of this study is to examine the effects of a measured aggregate productivity shock on asset returns. To achieve this, a simple equilibrium business cycle model is presented to show that an aggregate productivity shock can be identified as a factor affecting asset returns. The paper uses the Solow residual to measure productivity changes, but deviates from standard practice by incorporating variations in capital utilization rates. The paper first develops the theoretical link between productivity shocks and asset returns with no adjustment costs, and then tests that link with the two measures of productivity, the Solow residual with and without variation in capital utilization. Results based on U.S post-war data show significant differences in the dynamic impacts of these two measures of productivity. The VAR evidence suggests that technology changes, measured with variation in capital utilization, have a delayed impact on asset returns, a distinct finding. Finally, policy implications of the findings are discussed.
|Date of creation:||Jan 2006|
|Contact details of provider:|| Postal: Hongo 7-3-1, Bunkyo-ku, Tokyo 113-0033|
Web page: http://www.carf.e.u-tokyo.ac.jp/english/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- John Moore & Nobuhiro Kiyotaki, "undated".
1995-5, Edinburgh School of Economics, University of Edinburgh.
- Cochrane, John H, 1996. "A Cross-Sectional Test of an Investment-Based Asset Pricing Model," Journal of Political Economy, University of Chicago Press, vol. 104(3), pages 572-621, June.
- Roberto Rigobon & Brian P. Sack, 2002.
"The impact of monetary policy on asset prices,"
Finance and Economics Discussion Series
2002-4, Board of Governors of the Federal Reserve System (U.S.).
- Chen, Nai-Fu & Roll, Richard & Ross, Stephen A, 1986. "Economic Forces and the Stock Market," The Journal of Business, University of Chicago Press, vol. 59(3), pages 383-403, July.
- Jess Benhabib & Qinglai Meng & Kazuo Nishimura, 2000.
"Indeterminacy under Constant Returns to Scale in Multisector Economies,"
Econometric Society, vol. 68(6), pages 1541-1548, November.
- Benhabib, J. & Meng, Q. & Nishimura, K., 1999. "Indeterminacy Under Constant Returns to Scale in Multisector Economies," Working Papers 99-17, C.V. Starr Center for Applied Economics, New York University.
- Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
- Christopher J. Erceg & Luca Guerrieri, 2004.
"Can Long-Run Restrictions Identify Technology Shocks?,"
Computing in Economics and Finance 2004
3, Society for Computational Economics.
- Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Can Long-Run Restrictions Identify Technology Shocks?," Journal of the European Economic Association, MIT Press, vol. 3(6), pages 1237-1278, December.
- Christopher J. Erceg & Luca Guerrieri & Christopher J. Gust, 2004. "Can long-run restrictions identify technology shocks?," International Finance Discussion Papers 792, Board of Governors of the Federal Reserve System (U.S.).
- Owen Lamont, "undated".
"Investment Plans and Stock Returns.","
CRSP working papers
488, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Alain Paquet & Benoit Robidoux, 1997. "Issues on the Measurement of the Solow Residual and the Testing of its Exogeneity: a Tale of Two Countries," Cahiers de recherche CREFE / CREFE Working Papers 51, CREFE, Université du Québec à Montréal.
- Basu, Susanto & Fernald, John G, 1997.
"Returns to Scale in U.S. Production: Estimates and Implications,"
Journal of Political Economy,
University of Chicago Press, vol. 105(2), pages 249-283, April.
- Susanto Basu & John G. Fernald, 1996. "Returns to scale in U.S. production: estimates and implications," International Finance Discussion Papers 546, Board of Governors of the Federal Reserve System (U.S.).
- Marianne Baxter & Dorsey Farr, 2001. "Variable Factor Utilization and International Business Cycles," NBER Working Papers 8392, National Bureau of Economic Research, Inc.
- Serena Ng & Pierre Perron, 1997.
"Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power,"
Boston College Working Papers in Economics
369, Boston College Department of Economics, revised 01 Sep 2000.
- Serena Ng & Pierre Perron, 2001. "LAG Length Selection and the Construction of Unit Root Tests with Good Size and Power," Econometrica, Econometric Society, vol. 69(6), pages 1519-1554, November.
- Narayana R. Kocherlakota, 1996.
"The Equity Premium: It's Still a Puzzle,"
Journal of Economic Literature,
American Economic Association, vol. 34(1), pages 42-71, March.
- Narayana R. Kocherlakota, 1995. "The equity premium: it's still a puzzle," Discussion Paper / Institute for Empirical Macroeconomics 102, Federal Reserve Bank of Minneapolis.
- Kocherlakota, N., 1995. "The Equity Premium: It's Still a Puzzle," Working Papers 95-05, University of Iowa, Department of Economics.
- Robert E. Hall, 2004. "Measuring Factor Adjustment Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 899-927.
When requesting a correction, please mention this item's handle: RePEc:cfi:fseres:cf056. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.