NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

An Equilibrium Asset Pricing Model with Labor Market Search

Lars-Alexander Kuehn, Nicolas Petrosky-Nadeau, Lu Zhang

NBER Working Paper No. 17742
Issued in January 2012
NBER Program(s):   AP   EFG   LS

Search frictions in the labor market help explain the equity premium in the financial market. We embed the Diamond-Mortensen-Pissarides search framework into a dynamic stochastic general equilibrium model with recursive preferences. The model produces a sizeable equity premium of 4.54% per annum with a low interest rate volatility of 1.34%. The equity premium is strongly countercyclical, and forecastable with labor market tightness, a pattern we confirm in the data. Intriguingly, search frictions, combined with a small labor surplus and large job destruction flows, give rise endogenously to rare disaster risks a la Rietz (1988) and Barro (2006).

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17742

Users who downloaded this paper also downloaded these:
Bussiere, Callegari, Ghironi, Sestieri, and Yamano w17712 Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-09
Guvenen w17622 Macroeconomics With Heterogeneity: A Practical Guide
Scott-Clayton w17744 What Explains Trends in Labor Supply Among U.S. Undergraduates, 1970-2009?
Menzio, Telyukova, and Visschers w17746 Directed Search over the Life Cycle
Calomiris, Longhofer, and Miles w17740 The Housing Wealth Effect: The Crucial Roles of Demographics, Wealth Distribution and Wealth Shares
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us