Template-Type: ReDIF-Paper 1.0
Author-Name: Palma Filep-Mosberger
Author-X-Name-First: Palma
Author-X-Name-Last: Filep-Mosberger
Author-Email: mosbergerp@mnb.hu
Author-Workplace-Name: Central Bank of Hungary

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: Zhou Ren
Author-X-Name-First: Zhou
Author-X-Name-Last: Ren
Author-Email: zhou.ren@wu.ac.at
Author-Workplace-Name: Vienna University of Economics and Business

Title: Endogenous Growth, Countercyclical Dividends, and Asset Prices
Abstract: We study the nexus between endogenous growth and asset prices. We show that endogenous growth models with either
horizontal and vertical innovation match financial data well due to countercyclical dividends which are either procyclical or
acyclical in US data. Countercyclical dividends redistribute income from consumption towards investment in innovation improving
growth prospects which are reflected in asset prices. In the horizontal innovation model of Kung and Schmid (2015)
countercyclical dividends are the result of high monopoly markups. When markup is lowered from their benchmark 65 percent
to 60 or 55 percent dividends become procyclical, the price-dividend ratio countercyclical, and the mean of the equity
risk premia reduces from 290 to 82 or 46 basis points, respectively. When we introduce leisure preferences the wealth effect
of technology shocks makes the aggregate dividends countercyclical as long as labour supply is not too elastic even with low
values of the monopolist markup.
Length: 28 pages
Creation-Date: 2023
File-URL: https://www.mnb.hu/letoltes/mnb-wp-2023-2-final.pdf
File-Format: Application/pdf
Number: 2023/2
Classification-JEL: E13, E31, E43, E44, E62.
Keywords: endogenous growth, innovation, markup, asset pricing, dividends, equity premium.
Handle: RePEc:mnb:wpaper:2023/2