We study how heterogeneous beliefs affect returns and examine whether heterogeneous beliefs are a priced factor in traditional asset pricing models. To accomplish this task, we suggest new empirical measures based on the disagreement among analysts about expected (short-term and long-term)...

This paper explores the quantitative impact of the Baby Boom on stock and bond returns. It constructs a neoclassical growth model with overlapping generations, in which agents make a portfolio decision over risky capital and safe bonds in zero net supply. The model has exogenous technology and...

Survey data on expectations frequently find evidence that forecasts are biased, rejecting the joint hypothesis of rational expectations and symmetric loss. While the literature has attempted to explain this bias through forecasters' strategic behavior, we propose a simpler explanation based on...

This paper considers the dynamics for interest rate processes within the Heath, Jarrow and Morton (1992) specification. It is well known that one of the difficulties in using this specification for estimation is the non-Markovian nature of the dynamics. The paper focuses on a fairly broad family...

The literature gives evidence that term spreads help predict output growth, inflation, and interest rates. This paper integrates and explains these predictability results by using an affine term structure model with observable macroeconomic factors. The results suggest that consumers are willing...

This paper investigates the properties of optimal monetary and fiscal policy in a two sector small open economy. If the government can optimally select all possible distorting tax rates, then it can implement Pareto efficient outcomes and the Friedman Rule is found to be a necessary condition...

This paper incorporates the systematic risk of regime shifts into a general equilibrium model of the term structure of interest rates. The model shows that there is a new source of time-variation in bond term premiums in the presence of regime shifts. This new component is a regime-switching...

In this paper we incorporate the term structure of interest rates in a standard inflation forecast targeting framework. Learning about the transmission process of monetary policy is introduced by having heterogeneous agents - i.e. the central bank and private agents - who have different...

The paper applies methods of functional data analysis – functional auto-regression, principal components and canonical correlations – to the study of the dynamics of interest rate curve. In addition, it introduces a novel statistical tool based on the singular value decomposition...

This paper uses the flexible approach of Hamilton (2001) to investigate the nature of nonlinearities in the term structure. The paper reports clear evidence of nonlinearity, in contrast to the affine term structure model and consistent with recent claims in the literature. We find that there is...