Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
986622 | Review of Financial Economics | 2010 | 9 Pages |
Abstract
I examine asset returns in the context of real dynamic stochastic general equilibrium economies with multiple equilibria (indeterminacy) that allow for aggregate fluctuations due to non-fundamental belief shocks. The two models include habit formation in preferences. Model 1 combines restrictions on factor mobility and adjustment costs in a one-sector economy. Model 2 uses restrictions on factor mobility in a two-sector economy. Results demonstrate that Model 1 fails to match the stylized financial facts. Model 2 replicates the low risk-free rate and the standard deviation of the return on the risk-free asset, but underestimates the equity premium and standard deviation of the return on equity.
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Authors
Natalia Gershun,