Asset pricing and productivity growth: The role of consumption scenarios

Volker Böhm, Tomoo Kikuchi, George Vachadze

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)

Abstract

The paper analyzes the performance of asset prices implied by an aggregate macroeconomic growth model under two different consumption hypotheses: overlapping generations of agents with two period lives versus the infinitely lived agent. The production side of the economy is described by a random growth model with a competitive labor market and an exogenously given random dividend payout ratio. For an isoelastic technology with multiplicative production shocks this implies a random dynamical system for the firm's rate of profit with a unique asymptotically stable random fixed point for a large class of productivity growth and dividend payout ratio processes. Based on an extensive numerical study of stationary solutions we show that the two consumption scenarios imply a limited number of diverse effects regarding equity and bond returns and equity premia.

Original languageEnglish
Pages (from-to)163-181
Number of pages19
JournalComputational Economics
Volume32
Issue number1-2
DOIs
Publication statusPublished - 2008 Sep
Externally publishedYes

Keywords

  • Asset pricing
  • Computational and simulation techniques
  • Economic growth
  • Equity premium
  • Portfolio choice

ASJC Scopus subject areas

  • Economics, Econometrics and Finance (miscellaneous)
  • Computer Science Applications

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