A copy of this work was available on the public web and has been preserved in the Wayback Machine. The capture dates from 2018; you can also visit the original URL.
The file type is application/pdf.
An Equilibrium Asset Pricing Model with Labor Market Search
[report]
2012
unpublished
Preserved Fulltext
Search frictions in the labor market help explain the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces a sizeable equity premium of 4.54% per annum with a low interest rate volatility of 1.34%. The equity premium is strongly countercyclical, and forecastable with labor market tightness, a pattern we confirm in the data. Intriguingly, search
doi:10.3386/w17742
fatcat:gsglmpem7rhpdbn7hy7tvao6da