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THE EQUITY PREMIUM IN CONSUMPTION AND PRODUCTION MODELS

Published online by Cambridge University Press:  27 February 2012

Levent Akdeniz  and
W. Davis Dechert
Levent Akdeniz*
Affiliation:
Bilkent University
W. Davis Dechert
Affiliation:
University of Wisconsin
*
Address correspondence to: Levent Akdeniz, Associate Dean, Faculty of Business Administration, Bilkent University, 06800 Bilkent, Ankara, Turkey; e-mail: [email protected].
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Abstract

In this paper we use a simple model with a single Cobb–Douglas firm and a consumer with a CRRA utility function to show the difference between the equity premia in the production-based Brock model and the consumption-based Lucas model. With this simple example we show that the equity premium in the production-based model exceeds that of the consumption-based model with probability 1.

Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Supplement S1: Nonlinear Dynamics in Equilibrium Models , April 2012 , pp. 139 - 148
Copyright
Copyright © Cambridge University Press 2012

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References

REFERENCES

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