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Uncertainty in both financial markets and the real economy rises sharply during recessions. We develop a model of informational interdependence between financial markets and the real economy, linking uncertainty to information production and aggregate economic activities. We argue that there...
Persistent link: https://www.econbiz.de/10012480637
aggregate risk created by non-participants. We calibrate the heterogeneity in trading technologies to match the equity premium … and the risk-free rate. The calibrated model reproduces the skewness and kurtosis of the wealth distribution in the data … volatility of the risk-free rate …
Persistent link: https://www.econbiz.de/10012465060
account for the risk premia and asset price fluctuations. In addition, the model can empirically account for the cross …
Persistent link: https://www.econbiz.de/10012465457
a key determinant of risk premia at all investment horizons. As the investment horizon increases, transitory risks …
Persistent link: https://www.econbiz.de/10012465546
This paper studies the aggregate implications of imperfect risk-sharing implied by a class of New Keynesian models with … idiosyncratic income risk and incomplete financial markets. The models in this class can be equivalently represented as an economy … representative-agent economy to perform counterfactuals. We find that deviations from perfect risk-sharing were an important …
Persistent link: https://www.econbiz.de/10012479980
idiosyncratic income risk. These agents can trade a complete menu of contingent claims, but they cannot commit and shares in a Lucas … risk factor, in addition to aggregate consumption growth risk. This liquidity risk is created by binding solvency … constraints. The adjustment to the Breeden-Lucas stochastic discount factor induces substantial time variation in equity risk …
Persistent link: https://www.econbiz.de/10012467553
how it affects rational investors' demand for event risk exposures. We show that while parameter uncertainty does indeed … argue that parameter uncertainty does not appear to be a satisfactory explanation for high event-risk returns …
Persistent link: https://www.econbiz.de/10012470623
assets in the economy is greater than zero, an increase in inflation uncertainty will lower the risk premia on all real … assets. (3.) A preliminary empirical test of the theory using rates of return on common stocks, long-term bonds, real estate … and commodity futures contracts yields mixed results. The risk premia on long-term bonds and futures have the "wrong …
Persistent link: https://www.econbiz.de/10012478775
International consumption risk sharing studies have largely ignored their models' counterfactual implications for asset … returns although these returns incorporate direct market measures of risk. In this paper, we modify a canonical risk … variance of equity returns and the risk-free rate requires persistent consumption risk, leading to three main findings: (1 …
Persistent link: https://www.econbiz.de/10012460787
This paper studies Pareto-optimal risk-sharing arrangements in a private information economy with aggregate uncertainty …
Persistent link: https://www.econbiz.de/10012460841