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"We show that when in Lucas trees model the process for dividends is described by a lattice tree subject to infrequent but observable structural breaks, in equilibrium recursive rational learning may inflate the equity risk premium and reduce the risk-free interest rate for low levels of risk...
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explain the variation across time and countries of inflation patterns. In our model's equilibrium, profit differentials … increasing in inflation. Depending on the distribution of price revision costs, if enough sticky price firms choose to revise … their prices, the monetary authority's benefit from inflation is reduced to the point that the model has a unique, low …
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