NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Global Sunspots and Asset Prices in a Monetary Economy

Roger E.A. Farmer

NBER Working Paper No. 20831
Issued in January 2015, Revised in February 2015
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth

This paper constructs a simple model in which asset price fluctuations are caused by sunspots. Most existing sunspot models use local linear approximations: instead, I construct global sunspot equilibria. My agents are expected utility maximizers with logarithmic utility functions, there are no fundamental shocks and markets are sequentially complete. Despite the simplicity of these assumptions, I am able to go a considerable way towards explaining features of asset pricing data that have presented an obstacle to previous models that adopted similar assumptions. My model generates volatile persistent swings in asset prices, a substantial term premium for long bonds and bursts of conditional volatility in rates of return.

download in pdf format
   (375 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20831

Users who downloaded this paper also downloaded* these:
Farmer w19958 Asset Prices in a Lifecycle Economy
Farmer w18284 The Evolution of Endogenous Business Cycles
Farmer, Nourry, and Venditti w18647 The Inefficient Markets Hypothesis: Why Financial Markets Do Not Work Well in the Real World
Angrist, Autor, Hudson, and Pallais w20800 Leveling Up: Early Results from a Randomized Evaluation of Post-Secondary Aid
Eichengreen w20836 Secular Stagnation: The Long View
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

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

Contact Us