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Uncertainty or Frictions? A Quantitative Model of Scarce Safe Assets / Cosmin L. Ilut, Pavel Krivenko, Martin Schneider.
- Format:
- Book
- Author/Creator:
- Ilut, Cosmin L.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w32198.
- NBER working paper series no. w32198
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2024.
- Summary:
- Why did the real interest rate decline and the equity premium increase over the last 30 years? This paper assesses the role of uncertainty and credit market frictions. We quantify a model with heterogeneous households using data on asset prices and macro aggregates, as well as on households' debt and equity positions. We find that compensation for both uncertainty and frictions is reflected in asset prices. Moreover, a secular increase in frictions is important to understand jointly the decline in real rate and the relative scarcity of debt. Modeling uncertainty as ambiguity allows for tractable characterization of asset premia and precautionary savings effects in steady state.
- Notes:
- Print version record
- March 2024.
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