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New Shocks and Asset Price Volatility in General Equilibrium, Alessandro Rebucci, Akito Matsumoto, Pietro Cova, Massimiliano Pisani

Abstract
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
Table Of Contents
Contents; I. Introduction; II. A Partial Equilibrium Example; III. A DSGE Model; A. Households; B. Firms; C. Market Clearing and Equilibrium; D. Stochastic Processes and Information Assumptions; E. Solution; IV. General Equilibrium Results; A. News Shocks and Equity Prices; B. Productivity News Shocks; C. Monetary Policy News Shocks; D. Stochastic Discount Factor and News Shocks; E. Correlated News Shocks; V. The Impact of Monetary Policy Shocks on Equity Prices; VI. Conclusions; Appendix; I. Appendix 1; II. Appendix 2; A. Notation; B. Model Equilibrium Conditions; C. Model Solution; Figures
Language
eng
Literary Form
non fiction
Note
Description based upon print version of record
Physical Description
1 online resource (36 p.)
Specific Material Designation
remote
Form Of Item
online
Isbn
9781462342518

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