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| Author: | Lettau, M. |
| Title: | Inspecting the mechanism: closed-form solutions for asset prices in real business cycle models |
| Journal: | Economic Journal
2003 : JUL, VOL. 113:489, p. 550-575 |
| Index terms: | Asset valuation Business cycles Prices Risk premium |
| Language: | eng |
| Abstract: | Closed-form solutions are derived for asset prices in an RBC economy. The equations are based on a long-linear solution of the RBC model and allow a clearer understanding of the determination of risk premia in models with production. It is demonstrated why the premium of equity over the risk-free rate is small and also why the premium of equity over a real long-term bond is small and often negative. |
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