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Incomplete-Market Equilibria Solved Recursively on an Event Tree

Dumas, Bernard; Lyasoff, Andrew - National Bureau of Economic Research (NBER) - 2008

We develop a method that allows one to compute incomplete-market equilibria routinely for Markovian equilibria (when they exist). The main difficulty to be overcome arises from the set of state variables. There are, of course, exogenous state variables driving the economy but, in an incomplete...

Persistent link: https://www.econbiz.de/10005580794

Risk Based Explanations of the Equity Premium

Mehra, Rajnish; Donaldson, John - National Bureau of Economic Research (NBER) - 2007

This essay reviews the family of models that seek to provide aggregate risk based explanations for the empirically observed equity premium. Theories based on non-expected utility preference structures, limited financial market participation, model uncertainty and the small probability of...

Persistent link: https://www.econbiz.de/10005589022

International Financial Integration and Crisis Contagion

Devereux, Michael B.; Yu, Changhua - National Bureau of Economic Research (NBER) - 2014

International financial integration helps to diversify risk but also may increase the trans- mission of crises across countries. We provide a quantitative analysis of this trade-off in a two-country general equilibrium model with endogenous portfolio choice and collateral con- straints....

Persistent link: https://www.econbiz.de/10010950927

Asset Pricing with Countercyclical Household Consumption Risk

Constantinides, George M.; Ghosh, Anisha - National Bureau of Economic Research (NBER) - 2014

We present evidence that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and play a major role in driving asset prices. We construct a parsimonious model where heterogeneous households have recursive preferences and a single state variable drives the...

Persistent link: https://www.econbiz.de/10010951334

Putting the Brakes on Sudden Stops: The Financial Frictions-Moral Hazard Tradeoff of Asset Price Guarantees

Mendoza, Enrique G.; Durdu, C. Bora - National Bureau of Economic Research (NBER) - 2004

The hypothesis that Sudden Stops to capital inflows in emerging economies may be caused by global capital market frictions, such as collateral constraints and trading costs, suggests that Sudden Stops could be prevented by offering price guarantees on the emerging-markets asset class. Providing...

Persistent link: https://www.econbiz.de/10005084668

Evaluating Asset Pricing Models with Limited Commitment using Household Consumption Data

Krueger, Dirk; Lustig, Hanno; Perri, Fabrizio - National Bureau of Economic Research (NBER) - 2007

We evaluate the asset pricing implications of a class of models in which risk sharing is imperfect because of limited enforcement of intertemporal contracts. Lustig (2004) has shown that in such a model the asset pricing kernel can be written as a simple function of the aggregate consumption...

Persistent link: https://www.econbiz.de/10005084749

Human Capital Risk, Contract Enforcement, and the Macroeconomy

Krebs, Tom; Wright, Mark; Kuhn, Moritz - National Bureau of Economic Research (NBER) - 2011

least insured. We document this risk-insurance pattern in data on life-insurance drawn from the Survey of Consumer Finance …. A calibrated version of the model can quantitatively account for the life-cycle variation of insurance observed in the … US data and implies welfare costs of under-insurance for young households that are equivalent to a 4 percent reduction in …

Persistent link: https://www.econbiz.de/10009403425

Asymptotic Methods for Asset Market Equilibrium Analysis

Judd, Kenneth L.; Guu, Sy-Ming - National Bureau of Economic Research (NBER) - 2001

General equilibrium analysis is difficult when asset markets are incomplete. We make the simplifying assumption that uncertainty is small and use bifurcation methods to compute Taylor series approximations for asset demand and asset market equilibrium. A computer must be used to derive these...

Persistent link: https://www.econbiz.de/10005710656

Irreversible Investment, Real Options, and Competition: Evidence from Real Estate Development

Mayer, Christopher; Bulan, Laarni; Somerville, C. Tsuriel - National Bureau of Economic Research (NBER) - 2006

We examine the extent to which uncertainty delays investment and the effect of competition on this relationship using a sample of 1,214 condominium developments in Vancouver, Canada built from 1979-1998. We find that increases in both idiosyncratic and systematic risk lead developers to delay...

Persistent link: https://www.econbiz.de/10005714148

Are Asset Price Guarantees Useful for Preventing Sudden Stops?: A Quantitative Investigation of the Globalization Hazard-Moral Hazard Tradeoff

Durdu, C. Bora; Mendoza, Enrique G. - National Bureau of Economic Research (NBER) - 2005

The globalization hazard hypothesis maintains that the current account reversals and asset price collapses observed during 'Sudden Stops' are caused by global capital market frictions. A policy implication of this view is that Sudden Stops can be prevented by offering global investors price...

Persistent link: https://www.econbiz.de/10005720180

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