Asset Prices in Affine Real Business Cycle Models

Download or read book Asset Prices in Affine Real Business Cycle Models written by Maral Shamloo and published by International Monetary Fund. This book was released on 2010-11-01 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a tractable way to solve for equilibrium quantities and asset prices in a class of real business cycle models featuring Epstein-Zin preferences and affine dynamics for productivity growth and volatility. The method relies on log-linearization and exploits the log-normality of all the quantities. It is an easy substitute for more involved numerical techniques, such as higher order perturbation methods, and allows for easy implementation and analytical results. We show explicitly the link with perturbation techniques and find that the quantitative difference between the two is insignificant for several models of interest.