We study the consumption based asset pricing model due to Lucas (1978). The exogenous endowment sequence is modeled as a linear stochastic process driven by stable shocks in an otherwise standard framework. The Gaussian process emerges as a special case. We derive exact analytical solutions for...

Hansen and Jagannathan (1991) proposed a volatility bound for evaluating asset-pricing models that is a restriction on the volatility of a representative agentÌs intertemporal marginal rate of substitution (IMRS). We develop a generalization of their bound that (i) incorporates the serial...

National saving rate in the U.S. has been declining since the 1960s while the share of consumption in output has been increasing. We explore if a standard growth model can explain the secular trends observed in this time period. Our results indicate that the standard neoclassical growth model is...

This paper exhibits and quantifies a new theoretical channel of the non-neutrality of inflation transiting through capital market imperfections. Unconstrained households change their financial position in front of a change in the inflation rate, whereas constrained households can not. Thus...

After 40 years of stability, the homeownership rate -- a target for housing policy -- has steadily increased since 1995. We attempt to understand this increase using a quantitative model to evaluate various suggested explanations. We find that the increase can be explained by mortgage-market...

This paper describes a new continuous-time principal-agent model, in which the output is a diffusion process with drift determined by the agent’s unobserved effort. The risk-averse agent receives consumption continuously. An optimal contract, based on the agent’s continuation value...

This paper discusses calibration and numerical solution of a wide range of household portfolio models. We illustrate the main conceptual, technical, and computational issues that arise in the context of household portfolio choice, and explore the implications of alternative modeling choices. We...