Interest rate swaps are among the most popular derivative contracts. With an interest rate swap, fixed interest payments are exchanged for payments linked to a floating rate. In this paper we develop a dynamic stochastic general equilibrium model to study corporate debt financing and the use of...

This paper uses a temporary equilibrium framework to evaluate the impact of expectations on asset valuation. The model determines asset prices as a function of asset supply as well as the distribution of household endowments and expectations, which is matched to survey data.

This paper explores the baby boom's impact on U.S. house prices and interest rates in the post-war 20th century and beyond. Using a simple Lucas asset pricing model, I quantitatively account for the increase in real house prices, the path of real interest rates, and the timing of low-frequency...

The main goal of this paper is to measure the welfare costs of business cycles in a production economy in which the representative agent has low risk aversion and - at the same time - the equity premium and the co-movements of aggregate quantities and market returns are comparable to what...

Standard business cycle models with state-additive preferences, while broadly consistent with the behavior of real macroeconomic aggregates, are unable to generate asymmetries between expansions and recessions, and are also inconsistent with the behavior of asset prices. In this paper we exploit...

If stocks go up, investors may want to rebalance. But investors cannot all rebalance. Expected returns mustrise (or other moments must change) so that the average investor is happy to hold the total market portfolio despite its greater allocation to stocks. In this way, of market clearing can...

Milton Friedman argued that irrational traders will consistently lose money, won't survive and, therefore, cannot influence long run equilibrium asset prices. Since his work, survival and price influence have been assumed to be the same. Often partial equilibrium analysis has been relied upon to...

A central puzzle for asset pricing theory is that stock prices are much more volatile than corporate dividends. One possible resolution is to modify standard models by introducing stochastic discount factors that induce large variation in prices for relatively smooth sequences of dividends. But...