Irving Fisher long advocated inflation indexed bonds. I prove in the context of a multicommodity CAPM world that the best welfare improving bond pays the minimum money needed to achieve the same utility, and not the minimum needed to buy an ideal commodity bundle. Irving Fisher also developed...

Irving Fisher long advocated inflation indexed bonds. I prove in the context of a multicommodity CAPM world that the best welfare improving bond pays the minimum money needed to achieve the same utility, and not the minimum needed to buy an ideal commodity bundle. Irving Fisher also developed...

Stock market price/earnings ratios should be influenced by demography. Since demography is predictable, stock returns should be as well. We provide a simple stochastic OLG model with a cyclical structure that generates cyclical P/E ratios. We calibrate the model to roughly fit the cyclical...

This paper was begun during a visit at the Cowles Foundation in Fall 2000 and revised during a visit in Fall 2002: Michael Magill and Martine Quinzii are grateful for the stimulating environment and the research support provided by the Cowles Foundation. We are also grateful to Bob Shiller for...

Stock market price/earnings ratios should be influenced by demography. Since demography is predictable, stock returns should be as well. We provide a simple stochastic OLG model with a cyclical structure which generates cyclical P/E ratios. We calibrate the model to roughly fit the cyclical...

Irving Fisher long advocated inflation indexed bonds. I prove in the context of a multicommodity CAPM world that the best welfare improving bond pays the minimum money needed to achieve the same utility, and not the minimum needed to buy an ideal commodity bundle. Irving Fisher also developed...

We prove the existence of monetary equilibrium in a finite horizon economy with production. We also show that if agents expect the monetary authority to significantly decrease the supply of bank money available for short term loans in the future, then the economy will fall into a liquidity trap...

We prove that in competitive market economies with no insurance for idiosyncratic risks, agents will always overinvest in illiquid long term assets and underinvest in short term liquid assets. We take as our setting the seminal model of Diamond and Dybvig (1983), who first posed the question in...

Financial innovations that change how promises are collateralized can affect investment, even in the absence of any change in fundamentals. In C-models, the ability to leverage an asset always generates over-investment compared to Arrow Debreu. The introduction of CDS always leads to...

We show that financial innovations that change the collateral capacity of assets in the economy can affect investment even in the absence of any shift in utilities, productivity, or asset payoffs. First we show that the ability to leverage an asset by selling non-contingent promises can generate...