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Asset prices and business cycles with liquidity shocks
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SYSNO ASEP 0549031 Document Type V - Research Report R&D Document Type O - Ostatní Title Asset prices and business cycles with liquidity shocks Author(s) Nezafat, M. (US)
Slavík, Ctirad (NHU-N)Issue data Prague: CERGE-EI, 2021 ISSN 1211-3298 Series CERGE-EI Working Paper Series Series number 711 Number of pages 49 s. Publication form Print - P Language eng - English Country CZ - Czech Republic Keywords general equilibrium ; business cycles ; production based asset pricing Subject RIV AH - Economics OECD category Applied Economics, Econometrics Institutional support NHU-N - RVO:67985998 Annotation 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. Workplace Economics Institute Contact Tomáš Pavela, pavela@cerge-ei.cz, Tel.: 224 005 122 Year of Publishing 2022 Electronic address https://www.cerge-ei.cz/pdf/wp/Wp711.pdf
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