Global Sunspots and Asset Prices in a Monetary Economy / Roger E.A. Farmer.

Format:

Book

Author/Creator:

Farmer, Roger E.A.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20831.

NBER working paper series no. w20831

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2015.

Summary:

This paper constructs a simple model in which asset price fluctuations are caused by sunspots. Most existing sunspot models use local linear approximations: instead, I construct global sunspot equilibria. My agents are expected utility maximizers with logarithmic utility functions, there are no fundamental shocks and markets are sequentially complete. Despite the simplicity of these assumptions, I am able to go a considerable way towards explaining features of asset pricing data that have presented an obstacle to previous models that adopted similar assumptions. My model generates volatile persistent swings in asset prices, a substantial term premium for long bonds and bursts of conditional volatility in rates of return.

Notes:

Print version record

January 2015.