Template-Type: ReDIF-Paper 1.0
Author-Name: Lorant Kaszab
Author-X-Name-First: Lorant
Author-X-Name-Last: Kaszab
Author-Email: kaszabl@mnb.hu
Author-Workplace-Name: Central Bank of Hungary

Author-Name: Ales Marsal
Author-X-Name-First: Ales
Author-X-Name-Last: Marsal
Author-Email: ales.marsal@nbs.sk
Author-Workplace-Name: National Bank of Slovakia

Author-Name: Katrin Rabitsch
Author-X-Name-First: Katrin
Author-X-Name-Last: Rabitch
Author-Email: katrin.rabitsch@gmail.com
Author-Workplace-Name: Vienna University of Economics and Business


Title: Asset Pricing with Free Entry and Exit of Firms
Abstract: We study the asset-pricing implications of changes in the variety of
consumption goods which happens through free entry and exit of firms.
Fluctuations in varieties drive a wedge between the measured and model-based
(including variety growth) consumer price index making the pricing kernel as
well as asset prices more volatile without driving up the volatility of
consumption growth. Different from earlier endowment economy models of variety
growth our model contains production which i) generates the correlations
important for the explanation of the high mean and volatility of equity
premium endogenously, and ii) leads to an increase of about 140 basis points
in the risk-premia relative to the endowment model.
Length: 20 pages
Creation-Date: 2022
File-URL: https://www.mnb.hu/letoltes/mnb-wp-2022-5-final.pdf
File-Format: Application/pdf
Number: 2022/5
Classification-JEL: E32, E60, G12
Keywords: free entry and exit of firms, New Keynesian, asset pricing, equity premium
Handle: RePEc:mnb:wpaper:2022/5