Citation

Discussion Paper Details

Please find the details for DP1353 in an easy to copy and paste format below:

Full Details | Bibliographic Reference

Full Details

Title: Labour Contracts, Operating Leverage and Asset Pricing

Author(s): Jean-Pierre Danthine and John B Donaldson

Publication Date: February 1996

Keyword(s): Excess Volatility, Labour Contracts and Risk Premium

Programme Area(s): Financial Economics and International Macroeconomics

Abstract: This paper studies the pricing of financial assets in a complete general equilibrium set-up. We begin with an asset pricing model � la Lucas grafted on a standard Real Business Cycles model. We provide a new decentralized interpretation of such a model in which firms make meaningful investment decisions. We then confront qualitatively and quantitatively the implications of this model with financial observations. Drawing lessons from this exercise, we progressively enrich the model by introducing costs of adjusting the stock of capital, corporate debt and risk-sharing labour contracts. We find the latter to be particularly important in reconciling the model?s predictions with observations. We conclude that additional progress towards solving outstanding puzzles may come as much from a richer modelling of the real side of our economies as from further refinements in the description of the financial sector.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1353

Bibliographic Reference

Danthine, J and Donaldson, J. 1996. 'Labour Contracts, Operating Leverage and Asset Pricing'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1353