In this paper we take seriously the consequences of the Pricing Equation in constructing a novel consistent estimator of the stochastic discount factor (SDF) using panel data. Under general conditions it depends exclusively on appropriate averages of asset returns, and its computation is a...

Based on an idea in Backus, Foresi, and Telmer (1998) we extend the class of discrete-time affine multifactor Gaussian models by allowing factor innovations to be distributed as Gaussian mixtures. This is motivated by the observation that bond yield changes for some maturities are distinctly...

To match the stylised facts of goods and labour markets, the canonical New Keynesian model augments the optimising neoclassical growth model with nominal and real rigidities. We ask what the implications of this type of model are for asset prices. Using a second-order numerical solution to the...

Alvarez and Jermann (2000) show that the constrained efficient allocations of endowment economies with complete markets and limited commitment can be decentralized with endogenous borrowing limits on the Arrow securities. In a model with capital accumulation, aggregate risk and competitive...

This paper asks the question of whether the newly available TIPS yields data can help us achieve a better understanding of the real term structure and the inflation expectations. The yield differential between TIPS and comparable nominal coupon securities is not a direct measure of inflation...

This paper examines a recent shift in the dynamics of the term structure and interest rate risk. We first use standard yield-spread regressions to document such a shift in the U.S. in the mid-1980s. Over the pre- and post-shift subsamples, we then estimate dynamic, affine, no-arbitrage models,...