We construct a general equilibrium New-Keynesian model in which firms differ in characteristics such as size, book value, sensitivity to market demand and degree of price stickiness. This establishes an explicit economic relation between firm level characteristics and the relationship between...

Campbell and Vuolteenaho (2004) use VAR results to advocate inflation illusion as the explanation for the positive association between inflation and dividend yields. Using a structural approach, we find that a fully rational dynamic general equilibrium model can generate a positive correlation...

This paper studies the equity premium implications of a canonical New Keynesian model with investment. We find that the presence of a time-varying marginal cost dampens the expansionary impact of a positive technology shock. With a given fraction of firms standing ready to satisfy demand at...

I find that nominal equity returns respond to unexpected inflation more negatively during contractions than expansions. In particular, returns on firms with lower book-to-market ratio, or of medium size, demonstrate strong asymmetric correlations with unexpected inflation across the business...

This paper studies the distortionary impact of progressive dividend taxation on investment decisions under the premises of the “new” view. According to the new view, proportional dividend taxation does not distort firms' investment decisions. We find that progressive dividend taxation...

We use an asset pricing perspective to provide a novel interpretation of the marginal welfare cost of capital income taxes. We show that the marginal welfare cost can be interpreted as the normalized present discounted value of consumption distortions from capital income taxes. Such an...

Campbell and Vuolteenaho (2004) use VAR results to advocate inflation illusion as the explanation for the positive association between inflation and the dividend yield. Contrary to their results, we find that a fully rational dynamic general equilibrium model can generate a positive correlation...

This paper studies the impact of dividend and corporate income taxes on investment and asset returns in a stochastic general equilibrium model. Under the "new" view of dividend taxation (e.g. Poterba and Summers, 1985), proportional dividend taxes do not distort investment decisions, and thus...