Arbeitspapier

Stock price cycles and business cycles

We present a simple model that quantitatively replicates the behavior of stock prices and business cycles in the United States. The business cycle model is standard, except that it features extrapolative belief formation in the stock market, in line with the available survey evidence. Extrapolation amplifies the price effects of technology shocks and - in response to a series of positive technology surprises - gives rise to a large and persistent boom and bust cycle in stock prices. Boombust dynamics are more likely when the risk-free interest rate is low because low rates strengthen belief-based amplification. Stock price cycles transmit into the real economy by generating inefficient price signals for the desirability of new investment. The model thus features a "financial accelerator", despite the absence of financial frictions. The financial accelerator causes the economy to experience persistent periods of over- and under-accumulation of capital.

Sprache
Englisch
ISBN
978-92-899-3885-3

Erschienen in
Series: ECB Working Paper ; No. 2316

Klassifikation
Wirtschaft
Business Fluctuations; Cycles
Financial Markets and the Macroeconomy
Asset Pricing; Trading Volume; Bond Interest Rates
Thema
business cycles
stock market volatility
booms and busts
financial accelerator

Ereignis
Geistige Schöpfung
(wer)
Adam, Klaus
Merkel, Sebastian
Ereignis
Veröffentlichung
(wer)
European Central Bank (ECB)
(wo)
Frankfurt a. M.
(wann)
2019

DOI
doi:10.2866/883978
Handle
Letzte Aktualisierung
10.03.2025, 11:41 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Adam, Klaus
  • Merkel, Sebastian
  • European Central Bank (ECB)

Entstanden

  • 2019

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