Asset pricing implications of a new keynesian model

Bianca De Paoli (), Alasdair Scott and Olaf Weeken

Abstract: We investigate the behavior of asset prices in a typical New Keynesian macro model. Using a second-order approximation, we examine bond and equity returns, the equity risk premium, and the behavior of the real and nominal term structure. As documented in the literature, our results suggest that introducing real rigidities to the model increases risk premia. Nevertheless we that find that, in a world dominated by productivity shocks, increasing nominal rigidities reduces risk premia. Such rigidities only enhance risk premia when economic dynamics are mainly driven by monetary policy shocks. The results imply that, unlike in endowment frameworks, matching asset pricing facts in macro models will require attention to the composition of shocks, not just the specification of investor preferences.

Keywords: Asset; prices (search for similar items in EconPapers)
Date: 2010-09-17
Note: View the original document on HAL open archive server: https://hal.science/hal-00732761
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Published in Journal of Economic Dynamics and Control, 2010, 34 (10), pp.2056. ⟨10.1016/j.jedc.2010.05.012⟩

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Related works:
Journal Article: Asset pricing implications of a New Keynesian model (2010)
Working Paper: Asset pricing implications of a New Keynesian model (2007)
Working Paper: Asset pricing implications for a New Keynesian model (2007)
Working Paper: Asset pricing implications of a New Keynesian model (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00732761

DOI: 10.1016/j.jedc.2010.05.012

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