We show that volatility movements have first-order implications for consumption dynamics and asset prices. Volatility news affects the stochastic discount factor and carries a separate risk premium. In the data, volatility risks are persistent and are strongly correlated with discount-rate news....

We provide three sets of variance decompositions on microeconomic international relative price data. The first shows that the overall distribution of absolute deviations from the Law of One Price (LOP) is dominated by cross-sectional variation in long-term averages, not by time-series variation...

The paper estimates and examines the empirical plausibiltiy of asset pricing models that attempt to explain features of financial markets such as the size of the equity premium and the volatility of the stock market. In one model, the long run risks model of Bansal and Yaron (2004), low...

In this paper we show that measures of economic uncertainty (conditional volatility of consumption) predict and are predicted by valuation ratios at long horizons. Further we document that asset valuations drop as economic uncertainty rises that is, financial markets dislike economic...

We develop a general equilibrium model in which income and dividends are smooth, but asset prices are subject to large moves (jumps). A prominent feature of the model is that the optimal decision of investors to learn the unobserved state triggers large asset-price jumps. We show that the...

Volatile and persistent real exchange rates are observed not only in aggregate series but also in the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot...