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An Equilibrium Asset Pricing Model with Labor Market Search / Lars-Alexander Kuehn, Nicolas Petrosky-Nadeau, Lu Zhang.
- Format:
- Book
- Author/Creator:
- Kuehn, Lars-Alexander.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w17742.
- NBER working paper series no. w17742
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2012.
- Summary:
- Search frictions in the labor market help explain 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 a sizeable equity premium of 4.54% per annum with a low interest rate volatility of 1.34%. The equity premium is strongly countercyclical, and forecastable with labor market tightness, a pattern we confirm in the data. Intriguingly, search frictions, combined with a small labor surplus and large job destruction flows, give rise endogenously to rare disaster risks a la Rietz (1988) and Barro (2006).
- Notes:
- Print version record
- January 2012.
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