Revisiting the interest rate puzzle
This article makes a connection between Lucas' (1978) asset pricing model and the macroeconomic dynamics for some selected countries. Both the relative risk aversion and the impatience for postponing consumption by synthesizing the investor behaviour can help to understand some key macroeconomic issues across countries, such as the savings decision and the real interest rate. I find that the government consumption makes worse the so-called 'equity premium-interest rate puzzle'. The first root of the quadratic function for explaining the real interest rate can produce this puzzle, but not the second root. Thus, Mehra and Prescott (1985) identified only one possible solution.
Year of publication: |
2009
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Authors: | Yoshino, Joe Akira ; Santos, Edson Bastos e |
Published in: |
Applied Economics Letters. - Taylor & Francis Journals, ISSN 1350-4851. - Vol. 16.2009, 13, p. 1333-1340
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Publisher: |
Taylor & Francis Journals |
Saved in:
freely available
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