Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/269180 
Year of Publication: 
2022
Series/Report no.: 
MNB Working Papers No. 2022/5
Publisher: 
Magyar Nemzeti Bank, Budapest
Abstract: 
We study the asset-pricing implications of changes in the variety of consumption goods which happens through free entry and exit of firms. Fluctuations in varieties drive a wedge between the measured and model-based (including variety growth) consumer price index making the pricing kernel as well as asset prices more volatile without driving up the volatility of consumption growth. Different from earlier endowment economy models of variety growth our model contains production which i) generates the correlations important for the explanation of the high mean and volatility of equity premium endogenously, and ii) leads to an increase of about 140 basis points in the risk-premia relative to the endowment model.
Subjects: 
free entry exit of firms
New Keynesian
asset pricing
equity premium
JEL: 
E32
E60
G12
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.