An Equilibrium Asset Pricing Model with Labor Market Search / Lars-Alexander Kuehn, Nicolas Petrosky-Nadeau, Lu Zhang.

By:

Kuehn, Lars-Alexander

Contributor(s):

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w17742.Publication details: Cambridge, Mass. National Bureau of Economic Research 2012.Description: 1 online resource: illustrations (black and white)Subject(s):

Online resources:

Available additional physical forms:

Hardcopy version available to institutional subscribers

Abstract: Search frictions in the labor market help explain the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces a sizeable equity premium of 4.54% per annum with a low interest rate volatility of 1.34%. The equity premium is strongly countercyclical, and forecastable with labor market tightness, a pattern we confirm in the data. Intriguingly, search frictions, combined with a small labor surplus and large job destruction flows, give rise endogenously to rare disaster risks a la Rietz (1988) and Barro (2006).

Tags from this library: No tags from this library for this title. Log in to add tags.

Average rating: 0.0 (0 votes)

Holdings
Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w17742 (Browse shelf(Opens below))	Not For Loan

Total holds: 0

Collection: Colección NBER Close shelf browser (Hides shelf browser)

Previous	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	No cover image available	Next
Previous	nber w1774 New Estimates of Federal Government Tangible Capital and Net Investment /	nber w17740 The Housing Wealth Effect: The Crucial Roles of Demographics, Wealth Distribution and Wealth Shares /	nber w17741 Costly Blackouts? Measuring Productivity and Environmental Effects of Electricity Shortages /	nber w17742 An Equilibrium Asset Pricing Model with Labor Market Search /	nber w17743 The Diffusion of Microfinance /	nber w17744 What Explains Trends in Labor Supply Among U.S. Undergraduates, 1970-2009? /	nber w17745 Does Linking Worker Pay to Firm Performance Help the Best Firms Do Even Better? /	Next

January 2012.

Search frictions in the labor market help explain the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces a sizeable equity premium of 4.54% per annum with a low interest rate volatility of 1.34%. The equity premium is strongly countercyclical, and forecastable with labor market tightness, a pattern we confirm in the data. Intriguingly, search frictions, combined with a small labor surplus and large job destruction flows, give rise endogenously to rare disaster risks a la Rietz (1988) and Barro (2006).