How to order
IMF Publications

Working Papers in full text
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 All

Other research-related activities and publications of the IMF can be found at IMF Research

Free Email Notification

Receive emails when we post new items of interest to you.

Subscribe or Modify your profile

New Shocks and Asset Price Volatility in General Equilibrium

Author/Editor: Alessandro Rebucci | Akito Matsumoto | Pietro Cova | Massimiliano Pisani
Authorized for Distribution: May 1, 2011
Electronic Access: Free Full Text (PDF file size is 947KB)
Use the free Adobe Acrobat Reader to view this PDF file.
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We study equity price volatility in general equilibrium with news shocks about future productivity and monetary policy. As West (1988) shows, in a partial equilibrium present discounted value model, news about the future cash flow reduces asset price volatility. We show that introducing news shocks in a canonical dynamic stochastic general equilibrium model may not reduce asset price volatility under plausible parameter assumptions. This is because, in general equilibrium, the asset cash flow itself may be affected by the introduction of news shocks. In addition, we show that neglecting to account for policy news shocks (e.g., policy announcements) can potentially bias empirical estimates of the impact of monetary policy shocks on asset prices.
Order a print copy
Series: Working Paper No. 11/110
Subject(s): Economic models | External shocks | Productivity | Stock prices
Author's keyword(s): New shocks | Equity Prices | Productivity | Monetary Policy | Asset Price; volatility
    Published:   May 1, 2011        
    ISBN/ISSN:   9781455261390/1018-5941   Format:   Paper
    Stock No:   WPIEA2011110   Pages:   34
    Price:   US$18.00
Please address any questions about this title to