Asset prices, growth and endogenous wage inertia

Joseph D.Alba; Ammu George; Lorant  Kaszab

doi:10.1016/j.iref.2026.105470

Asset prices, growth and endogenous wage inertia

Joseph D.Alba
, Ammu George^*
, Lorant Kaszab

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

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Abstract

This paper examines the role of labor market dynamics in deepening the “scarring effects” of economic downturns in an asset pricing model with endogenous growth. By utilizing a search and matching labor market framework featuring endogenous wage inertia, we find that accounting for fluctuations in unemployment and new hires in asset pricing models deepens scarring effects and magnifies long-run risks. Specifically, the model with endogenous wage inertia generates higher risk premia and better matches U.S. data 1929-2017 than the model with simplified wage-setting frictions.

Original language	English
Number of pages	18
Journal	International Review of Economics and Finance
Early online date	11 Jun 2026
DOIs	https://doi.org/10.1016/j.iref.2026.105470
Publication status	Early online date - 11 Jun 2026

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This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 8 Decent Work and Economic Growth

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10.1016/j.iref.2026.105470

Asset prices, growth and endogenous wage inertia
© 2026 The Authors. This is an open access article published under a Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium, provided the author and source are cited.
Final published version, 1.34 MBLicence: CC BY

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Asset prices, growth and endogenous wage inertia

Abstract

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