; ; ; "ActiveFedora::Aggregation::ListSource" . a , ; "A Parsimonious Macroeconomic Model for Asset Pricing"; ; "batchuser@example.com"; "Guvenen, Fatih"; "Federal Reserve Bank of Minneapolis"; "Wealth inequality", "Epstein–Zin preferences", "Equity premium puzzle", "Limited stock market participation", "Elasticity of intertemporal substitution"; "I study asset prices in a two-agent macroeconomic model with two key features: limited stock market participation and heterogeneity in the elasticity of intertemporal substitution in consumption (EIS). The model is consistent with some prominent features of asset prices, such as a high equity premium; relatively smooth interest rates; procyclical stock prices; and countercyclical variation in the equity premium, its volatility, and in the Sharpe ratio. In this model, the risk-free asset market plays a central role by allowing non-stockholders (with low EIS) to smooth the fluctuations in their labor income. This process concentrates non-stockholders’ labor income risk among a small group of stockholders, who then demand a high premium for bearing the aggregate equity risk. Furthermore, this mechanism is consistent with the very small share of aggregate wealth held by non-stockholders in the US data, which has proved problematic for previous models with limited participation. I show that this large wealth inequality is also important for the model’s ability to generate a countercyclical equity premium. When it comes to business cycle performance the model’s progress has been more limited: consumption is still too volatile compared to the data, whereas investment is still too smooth. These are important areas for potential improvement in this framework."^^; "2009-08-20"; "2019-06-04T16:09:27.364091564+00:00"^^; "https://doi.org/10.21034/sr.434"; ; "https://creativecommons.org/licenses/by-nc/4.0/"; "Thu Nov 7 21:31:55 2019"; "https://creativecommons.org/licenses/by-nc/4.0/"; "Research Paper"; "308"; "Staff report (Federal Reserve Bank of Minneapolis. Research Department)"; "434"; "Limited stock market participation", "Epstein–Zin preferences", "Wealth inequality", "Elasticity of intertemporal substitution", "Equity premium puzzle"; ; ; ; ; "Federal Reserve Bank of Minneapolis. Research Department"; "Published in: _Econometrica_ (Vol. 77, No. 6, November 2009, pp. 1711-1750) https://doi.org/10.3982/ECTA6658. "^^; ; "Publication" . ; .