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Pricing assets in a perpetual youth model
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Farmer, Roger E. A. (2018) Pricing assets in a perpetual youth model. Review of Economic Dynamics, 30 . pp. 106-124. doi:10.1016/j.red.2018.04.003 ISSN 1094-2025.
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Official URL: https://doi.org/10.1016/j.red.2018.04.003
Abstract
This paper constructs a general equilibrium model where asset price fluctuations are caused by random shocks to beliefs about the future price level that reallocate consumption across generations. In this model, asset prices are volatile, and price–earnings ratios are persistent, even though there is no fundamental uncertainty and financial markets are sequentially complete. I show that the model can explain a substantial risk premium while generating smooth time series for consumption. In my model, asset price fluctuations are Pareto inefficient and there is a role for treasury or central bank intervention to stabilize asset price volatility.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HB Economic Theory Q Science > QA Mathematics |
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Divisions: | Faculty of Social Sciences > Economics | ||||||||
Library of Congress Subject Headings (LCSH): | Econometric models, Computable general equilibrium models, Time-series analysis | ||||||||
Journal or Publication Title: | Review of Economic Dynamics | ||||||||
Publisher: | Elsevier | ||||||||
ISSN: | 1094-2025 | ||||||||
Official Date: | October 2018 | ||||||||
Dates: |
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Volume: | 30 | ||||||||
Page Range: | pp. 106-124 | ||||||||
DOI: | 10.1016/j.red.2018.04.003 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Restricted or Subscription Access | ||||||||
Date of first compliant deposit: | 25 April 2018 | ||||||||
Date of first compliant Open Access: | 24 October 2019 | ||||||||
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