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Using AM and RI to get phase diagram

Using AM and RI to get phase diagram. Equity Price. Asset price stationary Δ q/ Δ t = 0. U. q. AM. S. RI. E. Zero net investment Δ K/ Δ t = 0. S. Capital Stock. U. K. K*. liquidity shock shifts E to E': with stock market fall leading to recession. AM. AM'. q. RI'. E. RI.

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Using AM and RI to get phase diagram

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  1. Using AM and RI to get phase diagram Equity Price Asset price stationary Δq/Δt = 0 U q AM S RI E Zero net investment ΔK/Δt = 0 S Capital Stock U K K*

  2. liquidity shock shifts E to E': with stock market fall leading to recession AM AM' q RI' E RI E' I P P K** K* K

  3. Diagram 1. Effect of a stochastic liquidity shock in US that lasts 10 quarters, official simulations and our analytical equivalent.

  4. Using AM and RI to get phase diagram

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