Number of the records: 1
Asset prices and business cycles with liquidity shocks
- 1.0549031 - NHÚ 2022 RIV CZ eng V - Research Report
Nezafat, M. - Slavík, Ctirad
Asset prices and business cycles with liquidity shocks.
Prague: CERGE-EI, 2021. 49 s. CERGE-EI Working Paper Series, 711. ISSN 1211-3298
Institutional support: RVO:67985998
Keywords : general equilibrium * business cycles * production based asset pricing
OECD category: Applied Economics, Econometrics
https://www.cerge-ei.cz/pdf/wp/Wp711.pdf
We develop a production based asset pricing model with financially constrained firms to explain the observed high equity premium and low risk-free rate volatility. Investment opportunities are scarce and firms face productivity and liquidity shocks. A negative liquidity shock forces firms to liquidate a fraction of their assets. We calibrate the model to U.S. data and find that it generates an equity premium and a level and volatility of risk-free rate comparable to those observed in the data. The model also fits key aspects of the behavior of aggregate quantities, in particular, the volatility of aggregate consumption and investment.
Permanent Link: http://hdl.handle.net/11104/0325072
Number of the records: 1