This paper studies the determinants of the equity premium as implied by producers' first-order conditions. A closed form expression is presented for the Sharpe ratio at steady-state as a function of investment volatility and adjustment cost curvature. Calibrated to the U.S. postwar economy, the...

In this article we define a Recursive Competitive Equilibrium, provide an example and review the related literature. The article is an entry prepared for The New Palgrave: A Dictionary of Economics, 2nd Edition (Palgrave Macmillan: New York).

Long-term data for 30 countries up to 2006 reveal 232 stock-market crashes (multi-year real returns of -25% or less) and 100 depressions (multi-year macroeconomic declines of 10% or more), with 71 of the cases matched by timing. The United States has two of the matched events--the Great...

We build on the Maddison GDP data to assemble international time series from before 1914 on real per capita personal consumer expenditure, C. We also improve the GDP data in many cases. The C variable comes closer than GDP to the consumption concept that enters into usual asset-pricing...

This paper focuses on the importance of equity markets in facilitating the exit of entrepreneurs investing in technology. Entrepreneurs' willingness to invest and aggregate output is affected in two opposite ways. First, uncertainty about equity price or lack of market liquidity discourages...

In this paper we develop a theoretical model in order to understand comovements between asset returns and consumption over longer horizons. We develop an intertemporal general equilibrium model featuring two types of shocks: small, frequent and disembodied shocks to productivity and large...

What role does labor play in a firm’s market value? We explore this question using a production-based asset pricing model with frictions in the adjustment of both capital and labor. We posit that hiring of labor is akin to investment in capital and that the two interact, with the interaction...

We document that the firm level hiring rate predicts stock returns in the cross-section of US publicly traded firms even after controlling for investment, size, book-to-market and momentum as well as other known predictors of stock returns. The predictability shows up in both Fama-MacBeth cross...

This paper considers the term structure of interest rates implied by a production-based asset pricing model in which the fundamental drivers are investment in equipment and structures as well as inflation. The model matches the average yield curve up to five-year maturity almost perfectly....

A model of heterogenous firms facing idiosyncratic risk is proposed which generates an equity premium of 6 per cent and a risk-free rate of 1.5 per cent even if aggregate returns are risk-free. The premium in this model reflects diminishing returns-to-scale and the fact that equity shares are...