Non-Falsified Expectations And General Equilibrium Asset Pricing: The Power Of The Peso  

Oleh:

Danthine, Jean-Pierre ; Donaldson, Joe F.

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Economic Journal (EBSCO) vol. 109 no. 458 (Oct. 1999), page 607-635.
Fulltext: 607.pdf (272.45KB)

Isi artikel

We discuss the extent to which the expectation of a rare event which happens not to materialise over the sample period, but which is not rationally excludable from the set of possibilities ± the peso problem ±, can affect the behaviour of rational agents and the characteristics of market equilibrium. To that end we describe quantitatively the macroeconomic and ®nancial properties of a standard equilibrium business cycle model modi®ed to allow for a very small probability of a depression state. We produce a model speci®cation for which both business cycle characteristics and mean ®nancial returns are in accord with United States observations.

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