Premium
Risk Premiums, Nominal Rigidities, and Limited Asset Market Participation
Author(s) -
MENNA LORENZO,
TIRELLI PATRIZIO
Publication year - 2021
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12793
Subject(s) - dynamic stochastic general equilibrium , economics , business cycle , monetary economics , distributive property , asset (computer security) , risk premium , profit (economics) , redistribution (election) , microeconomics , macroeconomics , monetary policy , mathematics , computer security , politics , computer science , law , political science , pure mathematics
Abstract Recent developments in the asset pricing literature show that a combination of technology and distributive shocks can rationalize observed risk premia when firm ownership is concentrated in the hands of few households. We find that distributive shocks are unnecessary when nominal price rigidity is taken into account. Our results are driven by the income redistribution associated to procyclical variations in profit margins when firms ownership is concentrated, prices are sticky, and technology shocks hit the economy. In this regard, standard DSGE models that allow for firm ownership concentration have the potential to replicate both business cycle facts and the moments of financial variables.