This paper proposes that equilibrium valuation is a powerful method to generate endogenous jumps in asset prices, which provides a structural alternative to traditional reduced-form specifications with exogenous discontinuities. We specify an economy with continuous consumption and dividend...

This paper studies quantitative implications of model economies that exhibit multiple equilibria. The goal is to assess two interrelated issues. First, do economies with multiple equilibria have falsifiable predictions? Second, is identification possible in economies that exhibit multiple...

A search-theoretic general equilibrium model of frictional unemployment is shown to be consistent with some of the key regularities of unemployment over the business cycle. In the model the return to a job moves stochastically. Agents can choose either to quit and search for a better job, or...

This paper investigates the dynamic behavior of an economy with multiple Nash equilibria. The first part of the paper analyzes an abstract game exhibiting multiple equilibria. A history dependent selection criterion is proposed which induces correlated behavior in equilibrium even though agents...

Fluctuations in the equilibrium rate of unemployment can only be understood within a theory of the natural or equilibrium rate. It is not enough to say that unemployment is the difference between supply and demand in the labor market, though of course it always will be. In equilibrium, no...

In this article we define a Recursive Competitive Equilibrium, provide an example and review the related literature. The article is an entry prepared for The New Palgrave: A Dictionary of Economics, 2nd Edition (Palgrave Macmillan: New York)

The stochastic discount factor seems volatile, but is this observation of any consequence for aggregate analysis of consumption, capital accumulation, output, etc.? I amend the standard frictionless model of aggregate consumption and capital accumulation with time-varying subjective probability...

Contrary to the Black-Scholes model, volatilities implied by index option prices depend on the exercise price of the option and are often higher than realized volatilities. We explain both facts in the context of a model that can also explain the mean and volatility of equity returns. Our model...

This paper studies the pricing of volatility risk using the first-order conditions of a long-term equity investor who is content to hold the aggregate equity market rather than tilting towards value stocks and other equity portfolios that are attractive to short-term investors. We show that a...

We develop a new methodology that allows conditional performance to be a function of information available at the start of the performance period but does not make assumptions about the behavior of the conditional betas. We use econometric techniques developed by Lynch and Wachter (2011) that...