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American Economic Review: Vol. 91 No. 1 (March 2001)
AER Volume. 91, Issue 1 | 
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Habit Persistence, Asset Returns, and the Business Cycle
Article Citation
Boldrin, Michele,
Lawrence J. Christiano, and
Jonas D. M. Fisher. 2001. "Habit Persistence, Asset Returns, and the Business Cycle."
American Economic Review,
91(1): 149-166.
DOI: 10.1257/aer.91.1.149
DOI: 10.1257/aer.91.1.149
Abstract
Two modifications are introduced into the standard real-business-cycle model: habit preferences and a two-sector technology with limited intersectoral factor mobility. The model is consistent with the observed mean risk-free rate, equity premium, and Sharpe ratio on equity. In addition, its business-cycle implications represent a substantial improvement over the standard model. It accounts for persistence in output, comovement of employment across different sectors over the business cycle, the evidence of "excess sensitivity" of consumption growth to output growth, and the "inverted leading-indicator property of interest rates," that interest rates are negatively correlated with future output.
Article Full-Text Access
Full-text Article
Authors
Boldrin, Michele (U MN)
Christiano, Lawrence J. (Northwestern U)
Fisher, Jonas D. M. (Federal Reserve Bank of Chicago)
Christiano, Lawrence J. (Northwestern U)
Fisher, Jonas D. M. (Federal Reserve Bank of Chicago)
JEL Classifications
E32: Business Fluctuations; Cycles
E44: Financial Markets and the Macroeconomy
O41: One, Two, and Multisector Growth Models
E44: Financial Markets and the Macroeconomy
O41: One, Two, and Multisector Growth Models
