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Long Term Asset Price Volatility and Macroeconomic Fluctuations

Listed author(s):
  • Miguel A. Iraola

    (Centro de Investigacion Economica, Instituto Tencologico Autonomo de Mexico)

  • Manuel S. Santos


    (Department of Economics, University of Miami)

We analyze a stochastic growth model with lags in the operation of new technologies. Stock values are impacted by news on technological innovations and some other external shocks affecting the economy. Episodes of technology adoption may generate long fluctuations in the aggregate value of stocks. We asses the quantitative importance of various macroeconomic variables in accounting for both the observed volatility of stock values and the less pronounced volatility of real macroeconomic aggregates. Our analysis singles out price markups and leverage as key determinants of asset price volatility, and confers a rather limited role to adjustment costs, taxes, and labor and financial frictions.

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Paper provided by University of Miami, Department of Economics in its series Working Papers with number 2010-1.

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Length: 45 pages
Date of creation: 02 Jul 2009
Publication status: Published
Handle: RePEc:mia:wpaper:2010-1
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