Several papers try to replicate the equity premium from asset market data within DSGE models.
Some authors introduce habit persistence preferences as well as adjustment costs (of investment or capital).
Where can I exactly observe this equity premium in a DSGE model? Directly after a production shock?
In the non-stochastic steady-state there is no risk. Adjustment cost do not exist and the ratio of the
Lagrange multipliers from budget constraint and capital accumulation process is unity. Therefore, I have no
variation in capital accumulation process and in conclusion no premium?
Many thanks in advance!