nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2004‒12‒12
four papers chosen by
Christian Zimmermann
University of Connecticut

  1. Forecasting with a Bayesian DSGE model : an application to the Euro area By Smets,F.; Wouters,R.
  2. Comparing shocks and frictions in US and Euro area business cycles : a Bayesian DSGE approach By Smets,F.; Wouters,R.
  3. A Theory of Housing Collateral, Consumption Insurance and Risk Premia By Hanno Lustig; Stijn Van Nieuwerburgh
  4. The Role of Preference Shocks and Capital Utilization in the Great Depression By Mark Weder

  1. By: Smets,F.; Wouters,R. (Nationale Bank van Belgie)
    Date: 2004
  2. By: Smets,F.; Wouters,R. (Nationale Bank van Belgie)
    Date: 2004
  3. By: Hanno Lustig; Stijn Van Nieuwerburgh
    Abstract: In a model with housing collateral, a decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, and increases the conditional market price of risk. This collateral mechanism can quantitatively replicate the conditional and the cross-sectional variation in risk premia on stocks for reasonable parameter values. The increase of the conditional equity premium and Sharpe ratio when collateral is scarce in the model matches the increase observed in US data. The model also generates a return spread of value firms over growth firms of the magnitude observed in the data, because the term structure of consumption strip risk premia is downward sloping.
    JEL: G0
    Date: 2004–12
  4. By: Mark Weder
    Abstract: The paper investigates the notion that preference shocks play a central role in our understanding of the Great Depression. I identify a series of universally large negative shocks which destabilized the U.S. during the 1930s. When the artificial economy is paired with variable capital utilization and mildly increasing returns to scale in production, it is able to account for most of the decline in economic activity and it is able to predict realistic persistence.
    Keywords: Great depression, preference shocks, dynamic general equilibrium.
    JEL: E32 N12
    Date: 2004–12

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