This paper studies the role of detrended wealth in predicting stock returns. We call a transitory movement in wealth one that produces a deviation from its shared trend with consumption and labor income. Using U.S. quarterly stock market data, we find that these trend deviations in wealth are...

In a recent paper ("A Primer on the Economics and Time Series Econometrics of Wealth Effects," 2001), Davis and Palumbo investigate the empirical relation between three cointegrated variables: aggregate consumption, asset wealth, and labor income. Although cointegration implies that an...

This paper explores the ability of theoretically based asset pricing models such as the CAPM and the consumption CAPM-referred to jointly as the (C)CAPM - to explain the cross-section of average stock returns. Unlike many previous empirical tests of the (C)CAPM, we specify the pricing kernel as...

We estimate a DSGE model where rare large shocks can occur, but replace the commonly used Gaussian assumption with a Student´s t-distribution. Results from the Smets and Wouters (2007) model estimated on the usual set of macroeconomic time series over the 1964-2011 period indicate that 1) the...

This paper concerns pitfalls associated with the use of approximations to dynamic Euler equations. Two applications of the approximations are notable. First, tests for precautionary saving motives typically involve regressing consumption growth on uncertainty in expected consumption growth. The...

The 1990s have seen astonishing growth in the stock market portfolios of Americans, which many have argued has been a major force behind the growth of consumer spending. This paper reviews the relationship between the stock market and the consumer. Using a variety of econometric techniques and...

In response to tight money, both consumer loans and consumption fall. In this paper, I ask whether there is any causality running from loans to consumption by focusing on hw the composition of automobile finance between bank and nonbank sources of credit changes in response to unanticipated...

This paper reestimates the simple forecasting regressions in Carroll, Fuhrer, and Wilcox (1993) (CFW), which investigate the predictive power of consumer sentiment for consumption growth. Durability in the consumption categories analyzed implies that the error term may be distributed as an...