The Equity Premium, Long-Run Risks to R-Star, and Asymmetric Optimal Monetary Policy
Federal Reserve Board
New Keynesian DSGE model with Epstein-Zin recursive preferences, long-run productivity risk (time-varying conditional expectation of productivity growth), vintage capital with heterogeneous exposure to aggregate productivity shocks, Calvo price
intermediate firms: monopolistic competition with Calvo pricing; final firms: perfect competition aggregating intermediate goods
Table 4 Panel A
Inflation Targeting Policy with High Equity Premium (RA=5.5, RP=4.5%)