Value stocks have higher exposure to innovations in the nominal bond risk premium, which measures the markets' perception of cyclical variation in future output growth, than growth stocks. The ICAPM then predicts a value risk premium provided that good news about future output lowers the...

Robert Solow has criticized our 2006 Journal of Economic Perspectives essay describing "Modern Macroeconomics in Practice." Solow eloquently voices the commonly heard complaint that too much macroeconomic work today starts with a model with a single type of agent. We argue that modern...

Periods of low household wealth in United States macroeconomic history have also been periods of high business cycle volatility. This paper develops a simple model that can exhibit self-fulfilling fluctuations in the expected path for unemployment. The novel feature is that the scope for...

Theoretical advances in macroeconomics made in the last three decades have had a major influence on macroeconomic policy analysis. Moreover, over the last several decades, the United States and other countries have undertaken a variety of policy changes that are precisely what macroeconomic...

In this paper, I compare a two-agent asset pricing model with the corresponding model with a continuum of agents. In a two-agent economy, interest rates respond to because each agent represents half of the population. These interest rate effects facilitate consumption smoothing. An agent in a...

We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at different lifecycle stages in an overlapping-generations economy. An optimal maturity structure exists in the absence of distortionary taxes and...

When limited commitment hinders unsecured credit, assets help by serving as collateral. We study models where assets differ in pledgability - the extent to which they can be used to secure loans - and hence liquidity. Although many previous analyses of imperfect credit focus on producers, we...

Over the past couple of decades, and especially since the financial crisis in 2008-09, real interest rates have collapsed. For much of the past two years they have been negative, but they have been trending down for some while. But how far have real rates fallen? This note computes a measure of...

Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several New Keynesian and macro-finance models in which the Taylor rule includes a shock unseen by economists. We show that identification of the rule's...

We develop new procedures for maximum likelihood estimation of affine term structure models with spanned or unspanned stochastic volatility. Our approach uses linear regression to reduce the dimension of the numerical optimization problem yet it produces the same estimator as maximizing the...