Using asset prices to measure the cost of business cycles:
We propose a method to measure the welfare cost of economic fluctuations that does not require full specification of consumer preferences and instead uses asset prices. The method is based on the marginal cost of consumption fluctuations, the per unit benefit of a marginal reduction in consumption f...
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Cambridge, Mass.
NBER
2000
|
| Schriftenreihe: | NBER working paper series
7978 |
| Schlagworte: | |
| Online-Zugang: | Volltext |
| Zusammenfassung: | We propose a method to measure the welfare cost of economic fluctuations that does not require full specification of consumer preferences and instead uses asset prices. The method is based on the marginal cost of consumption fluctuations, the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of consumption. We show that this measure is an upper bound for the benefit of reducing all consumption fluctuations. We also clarify the link between the cost of consumption uncertainty, the equity premium, and the slope of the real term structure. To measure the marginal cost of fluctuations, we fit a variety of pricing kernels that reproduce key asset pricing statistics. We find that consumers would be willing to pay a very high price for a reduction in overall consumption uncertainty. However, for consumption fluctuations corresponding to business cycle frequencies, we estimate the marginal cost to be about 0.55% of lifetime consumption based on the period 1889-1997 and about 0.30% based on 1954-97. |
| Beschreibung: | 51, [16] S. graph. Darst. 22 cm |
Internformat
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| 245 | 1 | 0 | |a Using asset prices to measure the cost of business cycles |c Fernando Alvarez ; Urban J. Jermann |
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| 490 | 1 | |a NBER working paper series |v 7978 | |
| 520 | |a We propose a method to measure the welfare cost of economic fluctuations that does not require full specification of consumer preferences and instead uses asset prices. The method is based on the marginal cost of consumption fluctuations, the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of consumption. We show that this measure is an upper bound for the benefit of reducing all consumption fluctuations. We also clarify the link between the cost of consumption uncertainty, the equity premium, and the slope of the real term structure. To measure the marginal cost of fluctuations, we fit a variety of pricing kernels that reproduce key asset pricing statistics. We find that consumers would be willing to pay a very high price for a reduction in overall consumption uncertainty. However, for consumption fluctuations corresponding to business cycle frequencies, we estimate the marginal cost to be about 0.55% of lifetime consumption based on the period 1889-1997 and about 0.30% based on 1954-97. | ||
| 650 | 4 | |a Assets (Accounting) |x Prices | |
| 650 | 4 | |a Business cycles | |
| 650 | 4 | |a Consumption (Economics) | |
| 700 | 1 | |a Jermann, Urban J. |e Verfasser |0 (DE-588)129560782 |4 aut | |
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Datensatz im Suchindex
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| id | DE-604.BV023589647 |
| illustrated | Illustrated |
| index_date | 2024-07-02T22:41:25Z |
| indexdate | 2024-07-09T21:25:07Z |
| institution | BVB |
| language | English |
| oai_aleph_id | oai:aleph.bib-bvb.de:BVB01-016904977 |
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| physical | 51, [16] S. graph. Darst. 22 cm |
| publishDate | 2000 |
| publishDateSearch | 2000 |
| publishDateSort | 2000 |
| publisher | NBER |
| record_format | marc |
| series | NBER working paper series |
| series2 | NBER working paper series |
| spelling | Alvarez, Fernando 1964- Verfasser (DE-588)12855178X aut Using asset prices to measure the cost of business cycles Fernando Alvarez ; Urban J. Jermann Cambridge, Mass. NBER 2000 51, [16] S. graph. Darst. 22 cm txt rdacontent n rdamedia nc rdacarrier NBER working paper series 7978 We propose a method to measure the welfare cost of economic fluctuations that does not require full specification of consumer preferences and instead uses asset prices. The method is based on the marginal cost of consumption fluctuations, the per unit benefit of a marginal reduction in consumption fluctuations expressed as a percentage of consumption. We show that this measure is an upper bound for the benefit of reducing all consumption fluctuations. We also clarify the link between the cost of consumption uncertainty, the equity premium, and the slope of the real term structure. To measure the marginal cost of fluctuations, we fit a variety of pricing kernels that reproduce key asset pricing statistics. We find that consumers would be willing to pay a very high price for a reduction in overall consumption uncertainty. However, for consumption fluctuations corresponding to business cycle frequencies, we estimate the marginal cost to be about 0.55% of lifetime consumption based on the period 1889-1997 and about 0.30% based on 1954-97. Assets (Accounting) Prices Business cycles Consumption (Economics) Jermann, Urban J. Verfasser (DE-588)129560782 aut Erscheint auch als Online-Ausgabe NBER working paper series 7978 (DE-604)BV002801238 7978 http://papers.nber.org/papers/w7978.pdf kostenfrei Volltext |
| spellingShingle | Alvarez, Fernando 1964- Jermann, Urban J. Using asset prices to measure the cost of business cycles NBER working paper series Assets (Accounting) Prices Business cycles Consumption (Economics) |
| title | Using asset prices to measure the cost of business cycles |
| title_auth | Using asset prices to measure the cost of business cycles |
| title_exact_search | Using asset prices to measure the cost of business cycles |
| title_exact_search_txtP | Using asset prices to measure the cost of business cycles |
| title_full | Using asset prices to measure the cost of business cycles Fernando Alvarez ; Urban J. Jermann |
| title_fullStr | Using asset prices to measure the cost of business cycles Fernando Alvarez ; Urban J. Jermann |
| title_full_unstemmed | Using asset prices to measure the cost of business cycles Fernando Alvarez ; Urban J. Jermann |
| title_short | Using asset prices to measure the cost of business cycles |
| title_sort | using asset prices to measure the cost of business cycles |
| topic | Assets (Accounting) Prices Business cycles Consumption (Economics) |
| topic_facet | Assets (Accounting) Prices Business cycles Consumption (Economics) |
| url | http://papers.nber.org/papers/w7978.pdf |
| volume_link | (DE-604)BV002801238 |
| work_keys_str_mv | AT alvarezfernando usingassetpricestomeasurethecostofbusinesscycles AT jermannurbanj usingassetpricestomeasurethecostofbusinesscycles |