Pricing Assets in a Perpetual Youth Model

Roger Farmer

NBER Working Paper No. 24261
Issued in January 2018
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics

This paper constructs a general equilibrium model where asset price fluctuations are caused by random shocks to beliefs about the future price level that reallocate consumption across generations. In this model, asset prices are volatile, and price-earnings ratios are persistent, even though there is no fundamental uncertainty and financial markets are sequentially complete. I show that the model can explain a substantial risk premium while generating smooth time series for consumption. In my model, asset price fluctuations are Pareto inefficient and there is a role for treasury or central bank intervention to stabilize asset price volatility.

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

Access to NBER Papers

You are eligible for 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.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w24261

Published: Roger E.A. Farmer, 2018. "Pricing assets in a perpetual youth model," Review of Economic Dynamics, .

Users who downloaded this paper also downloaded* these:
Di Maggio, Kermani, and Majlesi w24262 Stock Market Returns and Consumption
Lettau and Madhavan w24250 Exchange Traded Funds 101 For Economists
Bartram, Brown, and Stulz w24270 Why has Idiosyncratic Risk been Historically Low in Recent Years?
Di Tella w24205 A Neoclassical Theory of Liquidity Traps
Feenberg, Tepper, and Welch w24258 Are Interest Rates Really Low?
NBER Videos

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

Contact Us