We explore the implications of recursive utility for the conduct of fiscal policy.

In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of consumption growth. In the model, a decrease in house prices reduces the collateral value of housing, increases household exposure to idiosyncratic risk, reduces the amount of...

Standard theory prescribes that the government hedge against shocks to its expenditures by generating total debt portfolio returns with a negative beta on government expenditure innovations. This paper asseses how well the government manages its debt portfolio against the benchmark government...

Governments have traditionally financed their activities by selling nominal debt of various maturities. A long standing question concerns the optimal management of these liabilities. Many contributors have posited a role for short term nominal debt, either on cost minimization grounds or on tax...

U.S. financial institutions have traditionally insured the typical U.S. household against persistent shocks to U.S. inflation through the U.S. mortgage market. The bond risk premium is effectively the price of long-run inflation risk insurance charged by these U.S. intermediaries. Starting in...

We show that firms' idiosyncratic volatility in returns and cash flows obeys a strong factor structure. We find that the stocks of firms with large, negative common idiosyncratic volatility (CIV) factor betas earn high average returns. The CIV beta quintile spread is 6.4% per year. To explain...

We find that average returns to currency carry trades decrease signicantly as the maturity of the foreign bonds increases, because investment currencies tend to have small local bond term premia. The downward term structure of carry trade risk premia is informative about the temporal nature of...

The cross-section of returns of stock portfolios sorted along the book-to-market dimension can be understood with a one-factor model. The factor is the nominal bond risk premium, best measured as the Cochrane-Piazzesi (2005, CP) factor. This paper ties the pricing of stocks in the cross-section...