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An equilibrium asset pricing model with labor market search, working paper (2012).
| Content Provider | CiteSeerX |
|---|---|
| Author | Kuehn, Lars-Alexander Petrosky-Nadeau, Nicolas Zhang, Lu Wang, Neng Weisbach, Michael Werner, Ingrid Yaron, Amir |
| Abstract | Frictions in the labor market are important for understanding the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces realistic equity premium and stock market volatility, as well as a low and stable interest rate. The equity premium is countercyclical, and forecastable with labor market tightness, a pattern we confirm in the data. Intriguingly, three key ingredients (small profits, large job flows, and matching frictions) in the model combine to give rise endogenously to rare disasters à la Rietz (1988) and Barro (2006). |
| File Format | |
| Publisher Date | 2012-01-01 |
| Access Restriction | Open |
| Subject Keyword | Labor Market Search Equilibrium Asset Pricing Model Equity Premium Stock Market Volatility Large Job Flow Labor Market Tightness Small Profit Recursive Preference Dynamic Stochastic General Equilibrium Model Realistic Equity Premium Model Combine Stable Interest Rate Diamond-mortensen-pissarides Search Framework Labor Market Financial Market Key Ingredient |
| Content Type | Text |