Asset prices set in a competitive market need not be martingales; that is, it need not be true that the best predictor of future prices is the current price. Nonetheless, statistical tests for this property are sometimes treated as tests for the proper functioning of an asset market; asset...

This paper presents a macroeconomic model that is both a completely specified dynamic general equilibrium model and a probabilistic model for time series data. We view the model as a potential competitor to existing ISLM-based models that continue to be used for actual policy analysis. Our...

This paper develops a forecasting procedure based on a Bayesian method for estimating vector autoregressions. The procedure is applied to ten macroeconomic variables and is shown to improve out-of-sample forecasts relative to univariate equations. Although cross-variables responses are damped by...

When monthly data on production, prices, and the money stock are interpreted, via a vector autoregression, as generated by dynamic responses to "surprises" in each of the variables, a remarkable similarity in dynamics between interwar and postwar business cycles emerges, though the size of the...

This paper begins by examining the persistence of movements in the U.S. Government%u2019s budget posture. Deficits display considerable persistence, and debt levels (relative to GDP) even more so. Further, the degree of persistence depends on what gives rise to budget deficits in the first...

When the composition of assets outstanding in the market changes, the pattern of expected asset returns also changes, shifting to whatever return structure will induce investors to hold just the new composition of exisiting assets. The object of this paper is to determine, on the basis of the...

The object of this essay is to gain an overview of developments in theAmerican financial markets since World War II, with particular attention to changes that have occurred either between the prewar and post-war years or within the past several decades. Inevitably such an effort must be...

Among the numerous familiar sets of specific assumptions sufficient to derive mean-variance portfolio behavior from more general expected utility maximization in continuous time, the assumptions of constant relative risk aversion and joint normally distributed asset return assessments are also...

The extraordinary increase in reliance on debt by U.S. business in the 1980s has generated widespread concern that overextended borrowers may become unable to meet their obligations and that proliferating defaults could then lead to some kind of rupture of the financial system, with ensuing...

The principal rationales that give rise to financial intermediation are benefits of size and specialization, the diversification of specific asset risks, and the pooling of even broader classes of risk. Each is a significant factor in accounting for the U.S. economy's reliance on intermediation....