This paper develops a stochastic endogenous growth model that exhibits “excess volatility” of equity prices because speculative agents overreact to observed technology shocks. When making forecasts about the future, speculative agents behave like rational agents with very low risk aversion....

Panel discussion for the Federal Reserve Board/Journal of Money, Credit, and Banking (JMCB) conference on "Financial Markets and Monetary Policy", Washington D.C. , June 5, 2009

Presentation to the National Association for Business Economics, San Francisco, September 9, 2013

We investigate the behavior of the equilibrium price-rent ratio for housing in a standard asset pricing model. We allow for time-varying risk aversion (via external habit formation) and time-varying persistence and volatility in the stochastic process for rent growth, consistent with U.S. data...

This paper uses household consumption data to investigate whether uninsurable idiosyncratic risk accounts for the equity premium. The analysis complements and extends prior empirical work by relaxing maintained assumptions about idiosyncratic income shocks. Following Mankiw (1986), the paper...

In dynamic stochastic general equilibrium (DSGE) models, the household's labor margin as well as consumption margin affects Arrow-Pratt risk aversion. This paper derives simple, closed-form expressions for risk aversion that take into account the household's labor margin. Ignoring the labor...

Engel (2005) derives a theoretical variance inequality involving the change in equilibrium stock prices Var ( p) : Assuming that stock prices are "cum-dividend" and that investors are risk neutral, he shows that Var ( p) must be greater than or equal to the variance of the "perfect foresight"...

This paper investigates how concentrated ownership of capital influences the pricing of risky assets in a production economy. The model is designed to approximate the skewed distribution of wealth and income in U.S. data. I show that concentrated ownership significantly magnifies the equity risk...

How should monetary policy be conducted in the presence of endogenous feedback loops between asset prices, firms’ financial health, and economic activity? We reconsider this question in the context of the financial accelerator model and show that, when the level of natural output is...

Presentation to the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies—“Meeting the Challenges of the Financial Crisis”