A widely cited failing of real business cycle models is their inability to account for the cyclical patterns of ?nancial variables. Perhaps less well known is the fact that the return to capital and equity are identical in the neoclassical growth model. This paper constructs a measure of the...

An innovation in this paper is to introduce a time-to-build technology for the production of market capital into a model with home production. Our main finding is that the two anomalies that have plagued all household production modelsthe positive correlation between business and household...