Kuehn, Lars-Alexander; Petrosky-Nadeau, Nicolas; Zhang, Lu - Charles A. Dice Center for Research in Financial … - 2011
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...