This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) (EZW) recursive utility model, evaluates the model’s ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for...

Over the last 25 years, labor income inequality has increased significantly; one may expect this would lead to significant increases in wealth and consumption inequality. However the increase in wealth inequality has been relatively moderate and consumption inequality has barely increased at...

We explore the relationship between sticky wages and risk. Like operating leverage, sticky wages are a source of risk for the firm. Firms, industries, or times with especially high or rigid wages are especially risky. If wages are sticky then wage growth should negatively forecast future stock...

In standard models wages are too volatile and returns too smooth. We make wages sticky through infrequent resetting, resulting in both (i) smoother wages and (ii) volatile returns. Furthermore, the model produces other puzzling features of financial data: (iii) high Sharpe Ratios, (iv) low and...

We study the implications of long-run risk type shocks--shocks to the growth rate of productivity--for aggregate investment in a DSGE model. Our model offers an alternative to microfrictions explanation of aggregate investment non-linearities, in particular the heteroscedasticity of investment...

This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) recursive utility model, evaluates the model's ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the...

We use asset pricing insights to study importance of micro-level frictions for aggregate quantities. In our model, the relevant stochastic variable is a stationary growth rate (necessary to produce high Sharpe Ratios in a Long Run Risk world), as opposed to a trend-stationary level of...