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International R&D Spillovers and Asset Prices

Author

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  • Federico Gavazzoni
  • Ana Maria Santacreu

Abstract

We study the international propagation of long-run risk in the context of a general equilibrium model with endogenous growth. Innovation and international diffusion of technologies are the channels at the core of our mechanism. A calibrated version of the model matches several asset pricing and macroeconomic quantity moments, alleviating some of the puzzles highlighted in the international macro-finance literature. Our model predicts that country-pairs that share more R&D have less volatile exchange rates and more correlated stock market returns. Using data from a sample of 19 developed countries, we provide suggestive empirical evidence in favor of our model?s predictions.

Suggested Citation

  • Federico Gavazzoni & Ana Maria Santacreu, 2015. "International R&D Spillovers and Asset Prices," Working Papers 2015-41, Federal Reserve Bank of St. Louis, revised 13 Jan 2019.
  • Handle: RePEc:fip:fedlwp:2015-041
    DOI: 10.20955/wp.2015.041
    Note: Forthcoming in Journal of Financial Economics
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Annika Alexius & Daniel Spang, 2018. "Stock prices and GDP in the long run," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(4), pages 1-7.
    2. Chen, Shiu-Sheng, 2017. "Exchange rate undervaluation and R&D activity," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 148-160.
    3. Grüning, Patrick, 2018. "Heterogeneity in the internationalization of R&D: Implications for anomalies in finance and macroeconomics," Finance Research Letters, Elsevier, vol. 26(C), pages 132-138.
    4. Grüning, Patrick, 2017. "International endogenous growth, macro anomalies, and asset prices," Journal of Economic Dynamics and Control, Elsevier, vol. 78(C), pages 118-148.
    5. Michael Donadelli & Patrick Gruning, 2017. "Innovation Dynamics and Fiscal Policy: Implications for Growth, Asset Prices, and Welfare," Bank of Lithuania Working Paper Series 43, Bank of Lithuania.
    6. YiLi Chien & Hanno Lustig & Kanda Naknoi, 2015. "Why Are Exchange Rates So Smooth? A Household Finance Explanation," Working Papers 2015-39, Federal Reserve Bank of St. Louis, revised 27 Mar 2017.
    7. Kanda Naknoi & Hanno Lustig & YiLi Chien, 2017. "Why Are Exchange Rates So Smooth? A Heterogeneous Portfolio Explanation," 2017 Meeting Papers 214, Society for Economic Dynamics.
    8. Curatola, Giuliano & Donadelli, Michael & Grüning, Patrick, 2017. "Technology trade with asymmetric tax regimes and heterogeneous labor markets: Implications for macro quantities and asset prices," SAFE Working Paper Series 163, Leibniz Institute for Financial Research SAFE.
    9. Croce, Mariano Massimiliano & Nguyen, Thiên Tung & Raymond, Steve & Schmid, Lukas, 2018. "Government Debt and the Returns to Innovation," CEPR Discussion Papers 12617, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    international asset pricing; recursive preferences; long-run risk; innovation; international diffusion;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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