Risultati della ricerca
Creator: McGrattan, Ellen R. and Prescott, Edward C. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 610 Abstract:
U.S. stock prices have increased much faster than gross domestic product GDP) in the postwar period. Between 1962 and 2000, corporate equity value relative to GDP nearly doubled. In this paper, we determine what standard growth theory says the equity value should be in 1962 and 2000, the two years for which our steady-state assumption is a reasonable one. We find that the actual valuations were close to the theoretical predictions in both years. The reason for the large run-up in equity value relative to GDP is that the average tax rate on dividends fell dramatically between 1962 and 2000. We also find that, given legal constraints that effectively prohibited the holding of stocks as reserves for pension plans, there is no equity premium puzzle in the postwar period. The average returns on debt and equity are as theory predicts.
Soggetto: E13 - General Aggregative Models: Neoclassical, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, and H30 - Fiscal Policies and Behavior of Economic Agents: General
Creator: Kehoe, Patrick J., Lopez, Pierlauro, Midrigan, Virgiliu, and Pastorino, Elena Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 591 Abstract:
Recent critiques have demonstrated that existing attempts to account for the unemployment volatility puzzle of search models are inconsistent with the procylicality of the opportunity cost of employment, the cyclicality of wages, and the volatility of risk-free rates. We propose a model that is immune to these critiques and solves this puzzle by allowing for preferences that generate time-varying risk over the cycle, and so account for observed asset pricing fluctuations, and for human capital accumulation on the job, consistent with existing estimates of returns to labor market experience. Our model reproduces the observed fluctuations in unemployment because hiring a worker is a risky investment with long-duration surplus flows. Intuitively, since the price of risk in our model sharply increases in recessions as observed in the data, the benefit from creating new matches greatly drops, leading to a large decline in job vacancies and an increase in unemployment of the same magnitude as in the data.
Parola chiave: Unemployment volatility puzzle, Diamond-Mortenson-Pissarides model, Search and matching model, Shimer puzzle, and Search model Soggetto: E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data), J63 - Labor Turnover; Vacancies; Layoffs, E00 - Macroeconomics and Monetary Economics: General, J64 - Unemployment: Models, Duration, Incidence, and Job Search, E32 - Business Fluctuations; Cycles, E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity, and J60 - Mobility, Unemployment, Vacancies, and Immigrant Workers: General
Creator: Lacker, Jeffrey Malcolm and Schreft, Stacey Lee Series: Monetary theory and financial intermediation Abstract:
We describe a stochastic economic environment in which the mix of money and trade credit used as means of payment is endogenous. The economy has an infinite horizon, spatial separation and a credit-related transaction cost, but no capital. We find that the equilibrium prices of arbitrary contingent claims to future currency differ from those from one-good cash-in-advance models. This anomaly is directly related to the endogeneity of the mix of media of exchange used. In particular, nominal interest rates affect the risk-free real rate of return. The model also has implications for some long-standing issues in monetary policy and for time series analysis using money and trade credit.
Soggetto: E42 - Money and interest rates - Monetary systems ; Standards ; Regimes ; Government and the monetary system ; Payment systems and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
Creator: Lagos, Ricardo Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 373 Abstract:
I develop an asset-pricing model in which financial assets are valued for their liquidity—the extent to which they are useful in facilitating exchange—as well as for being claims to streams of consumption goods. The implications for average asset returns, the equity-premium puzzle and the risk-free rate puzzle, are explored in a version of the model that nests the work of Mehra and Prescott (1985).
Parola chiave: Equity Premium, Exchange, Risk-Free Rate, Asset Pricing, and Liquidity Soggetto: E52 - Monetary Policy, D42 - Market Structure, Pricing, and Design: Monopoly, and G12 - Asset Pricing; Trading Volume; Bond Interest Rates
Creator: Huo, Zhen and Ríos-Rull, José-Víctor Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 526 Abstract:
We study financial shocks to households’ ability to borrow in an economy that quantitatively replicates U.S. earnings, financial, and housing wealth distributions and the main macro aggregates. Such shocks generate large recessions via the negative wealth effect associated with the large drop in house prices triggered by the reduced access to credit of a large number of households. The model incorporates additional margins that are crucial for a large recession to occur: that it is difficult to reallocate production from consumption to investment or net exports, and that the reductions in consumption contribute to reductions in measured TFP.
Parola chiave: Balance sheet recession, Labor market frictions, Goods market frictions, and Asset price Soggetto: E44 - Financial Markets and the Macroeconomy, E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data), and E32 - Business Fluctuations; Cycles
Creator: Allen, Franklin, 1956- and Gale, Douglas Series: Monetary theory and financial intermediation Abstract:
Traditional theories of asset pricing assume there is complete market participation so all investors participate in all markets. In this case changes in preferences typically have only a small effect on asset prices and are not an important determinant of asset price volatility. However, there is considerable empirical evidence that most investors participate in a limited number of markets. We show that limited market participation can amplify the effect of changes in preferences so that an arbitrarily small degree of aggregate uncertainty in preferences can cause a large degree of price volatility. We also show that in addition to this equilibrium with limited participation and volatile asset prices, there may exist a Pareto-preferred equilibrium with complete participation and less volatility.
Soggetto: C58 - Financial Econometrics and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
Creator: Guerrieri, Veronica and Kondor, Péter Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 446 Abstract:
We propose a model of delegated portfolio management with career concerns. Investors hire fund managers to invest their capital either in risky bonds or in riskless assets. Some managers have superior information on the default probability. Looking at the past performance, investors update beliefs on their managers and make firing decisions. This leads to career concerns which affect investment decisions, generating a positive or negative “reputational premium.” For example, when the default probability is high, the return on the risky bond has to be high to compensate the uninformed managers for the high risk of being fired. As the default probability changes over time, the reputational premium amplifies price volatility.
Creator: Lagos, Ricardo Series: Quarterly review (Federal Reserve Bank of Minneapolis. Research Department) Number: Vol. 33, No. 1 Abstract:
I present a search-based model in which money coexists with equity shares on a risky aggregate endowment. Agents can use equity as a means of payment, so shocks to equity prices translate into aggregate liquidity shocks that disrupt the mechanism of exchange. I characterize a family of optimal monetary policies, and find that the resulting equity prices are independent of monetary considerations. I also study monetary policies that target a constant, but nonzero, nominal interest rate, and find that to the extent that a financial asset is valued as a means to facilitate transactions, the asset’s real rate of return will include a liquidity return that depends on monetary considerations. Through this liquidity channel, persistent deviations from an optimal monetary policy can cause the real prices of assets that can be used to relax trading constraints to exhibit persistent deviations from their fundamental values.
Creator: Mendoza, Enrique G., 1963- and Smith, Katherine A. Series: Advances in dynamic economics Abstract:
"Sudden Stops " experienced during emerging markets crises are characterized by large reversals of capital inflows and the current account, deep recessions, and collapses in asset prices. This paper proposes an open-economy equilibrium asset pricing model in which financial frictions cause Sudden Stops. Margin requirements impose a collateral constraint on foreign borrowing by domestic agents and trading costs distort asset trading by foreign securities firms. At equilibrium, margin constraints may or may not bind depending on portfolio decisions and equilibrium asset prices. If margin constraints do not bind, productivity shocks cause a moderate fall in consumption and a widening current account deficit. If debt is high relative to asset holdings, the same productivity shocks trigger margin calls forcing domestic agents to fire-sell equity to foreign traders. This sets off a Fisherian asset-price deflation and subsequent rounds of margin calls. A current account reversal and a collapse in consumption occur when equity sales cannot prevent a sharp rise in net foreign assets.
Parola chiave: Collateral constraints, Fisherian deflation, Emerging markets, Margin calls, Open economy asset pricing, Asset pricing, Sudden stops, Nonlinear dynamics, and Trading costs Soggetto: F32 - International finance - Current account adjustment ; Short-term capital movements, D52 - General equilibrium and disequilibrium - Incomplete markets, E44 - Money and interest rates - Financial markets and the macroeconomy, and F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics
Creator: Piazzesi, Monika and Schneider, Martin Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 423 Abstract:
In the 1970s, U.S. asset markets witnessed (i) a 25% dip in the ratio of aggregate household wealth relative to GDP and (ii) negative comovement of house and stock prices that drove a 20% portfolio shift out of equity into real estate. This study uses an overlapping generations model with uninsurable nominal risk to quantify the role of structural change in these events. We attribute the dip in wealth to the entry of baby boomers into asset markets, and to the erosion of bond portfolios by surprise inflation, both of which lowered the overall propensity to save. We also show that the Great Inflation led to a portfolio shift by making housing more attractive than equity. Apart from tax effects, a new channel is that disagreement about inflation across age groups drives up collateral prices when credit is nominal.
This paper is an extension of Monika Piazzesi's and Martin Schneider's work while they were in the Research Department of the Federal Reserve Bank of Minneapolis.