## Asset Prices in Affine Real Business Cycle Models

_IMF Working Papers, November 1, 2010_

## Source details

**Canonical URL:** [Asset Prices in Affine Real Business Cycle Models](https://www.imf.org/en/publications/wp/issues/2016/12/31/asset-prices-in-affine-real-business-cycle-models-24337)

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## Bibliographic details
- Authors: Maral Shamloo, Aytek Malkhozov
- Published: November 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455209491.001

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### Summary and main contribution
- Develops a tractable method to solve for equilibrium quantities and asset prices in a class of real business cycle models.
- Models feature Epstein-Zin preferences and affine dynamics for productivity growth and volatility.
- Method relies on log-linearization and exploits the log-normality of all the quantities.
- Presented as an easy substitute for more involved numerical techniques, such as higher order perturbation methods.
- Allows for easy implementation and analytical results.
- Shows explicitly the link with perturbation techniques and finds that the quantitative difference between the two is insignificant for several models of interest.

### Methodology and technical approach
- Core technique: log-linearization that uses log-normality of modeled variables.
- Target model features: Epstein-Zin preferences; affine dynamics for productivity growth and volatility.
- Comparison: explicit link established with higher order perturbation methods; quantitative differences described as insignificant in several models.

### Key findings and implications
- The proposed method provides tractable solutions for equilibrium quantities and asset prices in the specified class of models.
- The log-linearization approach:
  - Serves as an easy-to-implement analytical alternative to higher order perturbation methods.
  - Produces results that are quantitatively similar to perturbation techniques for several models of interest.

### Subjects and keywords
- Subject: Asset prices, Business cycles, Consumption, Labor, Productivity
- Keywords: mover accent, steady state, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/asset-prices-in-affine-real-business-cycle-models-24337_