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Asset Pricing and Productivity Growth: The Role of Consumption Scenarios

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Abstract

The paper analyzes the performance of asset prices implied by an aggregate macroeconomic growth model under two different consumption hypotheses: overlapping generations of agents with two period lives versus the infinitely lived agent. The production side of the economy is described by a random growth model with a competitive labor market and an exogenously given random dividend payout ratio. For an isoelastic technology with multiplicative production shocks this implies a random dynamical system for the firm’s rate of profit with a unique asymptotically stable random fixed point for a large class of productivity growth and dividend payout ratio processes. Based on an extensive numerical study of stationary solutions we show that the two consumption scenarios imply a limited number of diverse effects regarding equity and bond returns and equity premia.

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Authors and Affiliations

  1. Department of Economics, Bielefeld University, Postfach 100 131, 33501, Bielefeld, Germany

    Volker Böhm & George Vachadze

  2. Department of Economics, National University of Singapore, 1 Arts Link, AS2-04-30, Singapore, 117570, Singapore

    Tomoo Kikuchi

Authors
  1. Volker Böhm
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  2. Tomoo Kikuchi
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  3. George Vachadze
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Correspondence to Volker Böhm.

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Böhm, V., Kikuchi, T. & Vachadze, G. Asset Pricing and Productivity Growth: The Role of Consumption Scenarios. Comput Econ 32, 163–181 (2008). https://doi.org/10.1007/s10614-008-9137-3

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  • DOI: https://doi.org/10.1007/s10614-008-9137-3

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