Time varying risk premia in general equilibrium with production.

Endowment economies have generally been considered when trying to reproduce the empirical rejection of the expectation hypothesis of the term structure as an implication of equilibrium asset pricing models. Previous attempts have not been successful: large risk aversion parameters are needed to produce sizeable risk premia and even then, the expectation hypothesis is not rejected. We present an economy with a time-to-build technology, in wich consumption is subject to cash-in-advance constraints, in wich, the expectations hypothesis of the term structure does not hold. Monetary shocks are much more important than real demand or supply shocks in producing the result