Real interest rates, long run risks and business cycles. Standard theoretical model under power utility preferences generates time series for real yields and output that are not consistent with the cyclical properties of the macroeconomic data. In particular real interest rates of the model are...

This paper studies equilibrium in a pure exchange economy with unobservable Markov switching consumption growth regimes and regime-dependent preferences. Variations in risk attitudes have fundamental effects on the structure of equilibrium. Explicit solutions are provided for the market price of...

The risk premium puzzle is even worse than previously reported if housing is also taken into consideration next to equity. While housing premia are only moderately smaller than equity premia, they are significantly less volatile and the Sharpe ratio of housing is significantly larger. Hence,...