Equity pricing New Keynesian models with nominal rigidities and investment

Working paper

This paper derives explicitly an equity pricing relationship in a simple New Keynesian model. This relationship is used to study the equity pricing implications of New Keynesian models. I ?nd that New Keynesian models su?er from the same asset pricing shortcomings as more traditional RBC versions and that this can be attributed to the presence of nominal rigidities. I then add capital adjustment costs to study how the interaction of both investment adjustment costs and capital adjustment costs a?ect the results.

Authors: Nath, R

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2018-05-30
• Paper number: 850
• Keywords: capital adjustment costs; asset pricing; nominal rigidities; New Keynesian; investment adjustment costs