TY  - JOUR
AU  - Diebold,Francis X.
AU  - Ohanian,Lee E.
AU  - Berkowitz,Jeremy
TI  - Dynamic Equilibrium Economies: A Framework for Comparing Models and Data
JF  - National Bureau of Economic Research Technical Working Paper Series
VL  - No. 174
PY  - 1995
Y2  - February 1995
UR  - http://www.nber.org/papers/t0174
L1  - http://www.nber.org/papers/t0174.pdf
N1  - Author contact info:
Francis X. Diebold
Department of Economics
University of Pennsylvania
3718 Locust Walk
Philadelphia, PA  19104-6297
Tel: 215/898-1507
Fax: 212/573-4217
E-Mail: fdiebold@sas.upenn.edu

Lee E. Ohanian
8283 Bunche Hall
UCLA, Department of Economics
Box 951477
Los Angeles, CA  90095
Tel: 310/825-0979
Fax: 310/825-9528
E-Mail: ohanian@econ.ucla.edu

Jeremy Berkowitz
University of Houston
Department of Finance
334 Melcher Hall
Houston, TX 77204-6021
E-Mail: jberkowitz@uh.edu
AB  - Many recent theoretical papers have come under attack for modeling prices as Geometric Brownian Motion.  This process can diverge over time, implying that firms facing this price process can earn infinite profits.  We explore the significance of this attack and contrast investment under Geometric Brownian Motion with investment assuming mean reversion.  While analytically more complex, mean reversion in many cases is a more plausible assumption, allowing for supply responses to increasing prices.  We show a mean reversion process rather than Geometric Brownian Motion and provide an explanation for this result.
ER  -