New Shocks and Asset Price Volatility in General Equilibrium

WPIEA2011110 Image
Price:  $18.00

Author/Editor: Alessandro Rebucci, Akito Matsumoto, Pietro Cova, Massimiliano Pisani
Release Date: © May, 2011
ISBN : 978-1-45526-139-0
Stock #: WPIEA2011110
Stock Status: On back-order

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We study equity price volatility in general equilibrium with news shocks about future productivity and monetary policy. As West (1988) shows, in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility. We show that introducing news shocks in a canonical dynamic stochastic general equilibrium model may not reduce asset price volatility under plausible parameter assumptions. This is because, in general equilibrium, the asset cash flow itself may be affected by the introduction of news shocks. In addition, we show that neglecting to account for policy news shocks (e.g., policy announcements) can potentially bias empirical estimates of the impact of monetary policy shocks on asset prices.


Asset prices , Business cycles , Capital markets , Economic development , Economic policy , Financial institutions and markets , Monetary policy

More publications in this series: Working Papers

More publications by: Alessandro Rebucci ; Akito Matsumoto ; Pietro Cova ; Massimiliano Pisani