Recently there has been a great deal of interest in studying monetary policy under model uncertainty. We point out that different assumptions about the uncertainty may result in drastically different robust' policy recommendations. Therefore, we develop new methods to analyze uncertainty about...

Analyses of public policy regularly express certitude about the consequences of alternative policy choices. Yet policy predictions often are fragile, with conclusions resting on critical unsupported assumptions. Then the certitude of policy analysis is not credible. This paper develops a...

Empirical results based on two different statistical approaches lead to several conclusions about the role of time-varying asset risk assessments in accounting for what, on the basis of many earlier studies, appear to be time-varying differentials in ex ante asset returns. First, both methods...

This paper exploits a data rich environment to provide direct econometric estimates of time-varying macroeconomic uncertainty, defined as the common volatility in the unforecastable component of a large number of economic indicators. Our estimates display significant independent variations from...

In this paper we extend the recent work on the choice of input mix under uncertainty. In particular, we demonstrate that the qualitative nature of the disturbance term, along with the decision sequence, is a crucial determinant of the overall effect of uncertainty on the optimal input mix of a...

We develop an asset-pricing model with endogenous corporate policies that explains how inflation jointly impacts real asset prices and corporate default risk. Our model includes two empirically grounded nominal frictions: fixed nominal coupons and sticky profitability. Taken together, these two...

The recently developed long-run risks asset pricing model shows that concerns about long-run expected growth and time-varying uncertainty (i.e., volatility) about future economic prospects drive asset prices. These two channels of economic risks can account for the risk premia and asset price...

In the asset pricing literature, time-variation in market expected excess return captured by financial ratios like dividend yield is typically viewed as a reflection of either changing risk, related to the business cycle, or irrational mispricing. Extending the work on asset allocation and...

We show that shocks to household consumption growth are negatively skewed, persistent, countercyclical, and drive asset prices. We construct a parsimonious model where heterogeneous households have recursive preferences. A single state variable drives the conditional cross-sectional moments of...