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HABIT PERSISTENCE AND ASSET RETURNS IN AN EXCHANGE ECONOMY

  • MICHELE BOLDRIN (a1), LAWRENCE J. CHRISTIANO (a2) and JONAS D.M. FISHER (a3)
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We examine asset prices and returns in the context of a pure exchange economy. Our purpose is to identify the key channels by which changes in preferences affect the equity premium and the risk-free rate and to develop intuition that is useful for understanding asset pricing in more complicated economies. Our analysis suggests that capital gains play a crucial role in generating empirically plausible mean equity premia.

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Corresponding author
Address correspondence to: Jonas Fisher, Economic Research Department, Federal Reserve Bank of Chicago, Chicago, IL 60604-1413, USA; e-mail: jfisher@aruba.frbchi.org
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Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
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