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Asset Prices and Unemployment Fluctuations

Author

Listed:
  • Patrick Kehoe

    (Stanford University)

  • Elena Pastorino

    (Stanford University)

  • Pierlauro Lopez

    (Banque de France)

  • Virgiliu Midrigan

    (New York University)

Abstract

Discount rate variation generated by slow-moving habits and amplified by human capital accumulation accumulation can generate large responses of unemployment to productivity changes. Job creation is a type of investment made by firms, who decide how many resources to invest in recruiting new workers; in their investment choice, firms respond to incentives driven by the cyclical evolution of expected future payoffs from filled vacancies and, most importantly, of the required return for bearing the associated risk. The channel we focus on is parsimonious, as it offers a unified explanation for asset pricing and business-cycle facts, and in particular for a sizable fraction of unemployment fluctuations. The economic forces that account for the ample fluctuations in stock market valuations and risk premia can also drive employers’ decisions to hire and post new vacancies.

Suggested Citation

  • Patrick Kehoe & Elena Pastorino & Pierlauro Lopez & Virgiliu Midrigan, 2018. "Asset Prices and Unemployment Fluctuations," 2018 Meeting Papers 1119, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:1119
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    Cited by:

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    2. Susanto Basu & Giacomo Candian & Ryan Chahrour & Rosen Valchev, 2021. "Risky Business Cycles," Boston College Working Papers in Economics 1029, Boston College Department of Economics, revised 17 Sep 2024.
    3. Saki Bigio & Eduardo Zilberman, 2020. "Speculation-Driven Business Cycles," Working Papers Central Bank of Chile 865, Central Bank of Chile.
    4. Robert E. Hall & Marianna Kudlyak, 2022. "Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years?," NBER Macroeconomics Annual, University of Chicago Press, vol. 36(1), pages 1-55.
    5. Krivenko, Pavel, 2023. "Asset prices in a labor search model with confidence shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    6. John B. Donaldson & Rajnish Mehra, 2021. "Average crossing time: An alternative characterization of mean aversion and reversion," Quantitative Economics, Econometric Society, vol. 12(3), pages 903-944, July.
    7. Pierlauro Lopez & David Lopez-Salido & Francisco Vazquez-Grande, 2018. "Risk-Adjusted Linearizations of Dynamic Equilibrium Models," Working papers 702, Banque de France.
    8. Indrajit Mitra & Taeuk Seo & Yu Xu, 2024. "High Discounts and Low Fundamental Surplus: An Equivalence Result for Unemployment Fluctuations," Management Science, INFORMS, vol. 70(6), pages 4051-4068, June.
    9. Lars Ljungqvist & Thomas Sargent, 2021. "The fundamental surplus strikes again," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 38-51, July.
    10. Sebastian Di Tella & Robert E. Hall, 2020. "Risk Premium Shocks Can Create Inefficient Recessions," NBER Working Papers 26721, National Bureau of Economic Research, Inc.
    11. Yusuf Mercan & Benjamin Schoefer & Petr Sedláček, 2020. "A Congestion Theory of Unemployment Fluctuations," CESifo Working Paper Series 8731, CESifo.
    12. Mehran Ebrahimian & Jessica Wachter, 2020. "Risks to Human Capital," NBER Working Papers 26823, National Bureau of Economic Research, Inc.
    13. Dou, Winston Wei & Ji, Yan & Wu, Wei, 2021. "Competition, profitability, and discount rates," Journal of Financial Economics, Elsevier, vol. 140(2), pages 582-620.
    14. Cakici, Nusret & Zaremba, Adam, 2023. "Misery on Main Street, victory on Wall Street: Economic discomfort and the cross-section of global stock returns," Journal of Banking & Finance, Elsevier, vol. 149(C).

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    More about this item

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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