Original title: Asset prices and business cycles with liquidity shocks
Authors: Nezafat, M. ; Slavík, Ctirad
Document type: Research reports
Year: 2021
Language: eng
Series: CERGE-EI Working Paper Series, volume: 711
Abstract: 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.
Keywords: business cycles; general equilibrium; production based asset pricing

Institution: Economics Institute AS ČR (web)
Document availability information: Fulltext is available at external website.
External URL: https://www.cerge-ei.cz/pdf/wp/Wp711.pdf
Original record: http://hdl.handle.net/11104/0325072

Permalink: http://www.nusl.cz/ntk/nusl-508251


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