Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/179329 
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper No. 2114
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We study a quantitative DSGE model linking a state of the art asset pricing framework à la Kung and Schmid (2015) with a constraint on leverage as in Gertler and Kiyotaki (2010). We show that a mere increase in the probability of firms being financially constrained leads to an increase in risk premia. Even for a small adverse shock to productivity a drop in asset valuation restrains firms from outside financing and by that induces a persistent low growth environment. In our framework a constraint on leverage induces countercyclical risk premia in equity markets even when it does not bind.
Subjects: 
risk premia
financial accelerator
asset pricing
endogenous growth
JEL: 
D53
G01
G12
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3030-7
Document Type: 
Working Paper

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