Risk Sharing and Asset Returns in Stochastic Endogenous Growth Models

In chapter three, the asset return and business cycle implications of a stochastic endogenous growth model with heterogeneous agents and incomplete markets are analyzed. The asset market structure of the economy is incomplete in the sense that households in the model economy can trade shares in a stock company and a risk free bond in financial markets, but cannot (directly) insure against idiosyncratic production (income) risk. A simple characterization of the unique (constrained efficient) equilibrium is provided. The calibrated model economy is as successful as the standard real business cycle model in replicating the comovements of aggregate output, consumption, and investment, but strictly outperforms it along the asset return dimension. More specifically, the model generates a significant equity premium if idiosyncratic production (income) risk is large during times of economic contraction and stock market decline.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Economics

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2015

Author dc:creator

• Wilson, Bonnie Erin

Contributors dc:contributor

• Tom Krebs

• Economics, Finance

Language dc:language

eng

Identifier

(MiAaPQ)AAI9945030

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/85658