The equity premium in consumption and production models


Akdeniz L., Dechert W. D.

Macroeconomic Dynamics, vol.16, no.SUPPL. 1, pp.139-148, 2012 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 16 Issue: SUPPL. 1
  • Publication Date: 2012
  • Doi Number: 10.1017/s1365100511000708
  • Journal Name: Macroeconomic Dynamics
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.139-148
  • TED University Affiliated: Yes

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. © 2012 Cambridge University Press .