Can a Time-to-Plan Model explain The Equity Premium Puzzle
Beaubrun-Diant, Kevin (2005), Can a Time-to-Plan Model explain The Equity Premium Puzzle, Economics Bulletin, 7, 2, p. 1-8
TypeArticle accepté pour publication ou publié
External document linkhttp://economicsbulletin.vanderbilt.edu/2005/volume7/EB-04G10006A.pdf
Journal nameEconomics Bulletin
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Abstract (EN)This paper proposes a quantitative evaluation of the time-to-plan technology in order to investigate up to which point this mechanism could constitute a satisfactory alternative to the well-known capital adjustment cost technology. We show that the time-to-plan mechanism reproduces a realistic risk-free rate, whilst being capable of generating a substantial equity premium. About the model's explanation of the business cycle, it turns out that the model predicts a perfectly positive and significant correlation between employment and output.
Subjects / KeywordsInvestment delays; Business cycle; Asset return puzzles
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