New Shocks and Asset Price Volatility in General Equilibrium
Author | : Alessandro Rebucci |
Publisher | : |
Total Pages | : 46 |
Release | : 2011-05-01 |
ISBN-10 | : OCLC:731915847 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book New Shocks and Asset Price Volatility in General Equilibrium written by Alessandro Rebucci and published by . This book was released on 2011-05-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.