Households face earnings risk which is non-normal and varies by age and over the income distribution. We show that allowing for these rich features of earnings dynamics, in the context of a structurally estimated life-cycle portfolio choice model, helps to rationalize the limited participation...

The U.S. economy is characterized by large, longer term regime shifts in asset values relative to macroeconomic fundamentals. These movements coincide with shifts in the real federal funds rate in excess of a measure of the natural rate of interest, and in equity market return premia. We specify...

We find evidence of infrequent shifts, or "regimes," in the mean of the asset valuation variable <i>cay_t</i> that are strongly associated with low-frequency fluctuations in the real federal funds rate, with low policy rates associated with high asset valuations, and vice versa. There is no evidence...

We document large, longer-term, joint regime shifts in asset valuations and the real federal funds rate-r* spread. To interpret these findings, we estimate a novel macro-finance model of monetary transmission and find that the documented regimes coincide with shifts in the parameters of a policy...