In this paper we use a representative consumer model to analyse the equilibrium relation between the transitory deviations from the common trend among consumption, aggregate wealth, and labour income, cay, and focus on the implications for both stock returns and housing returns. The evidence...

In this paper we use a representative consumer model to analyse the equilibrium relation between the transitory deviations from the common trend among consumption, aggregate wealth, and labour income, cay, and focus on the implications for both stock returns and housing returns. The evidence...

Empirical studies of the consumption-wealth relationship often assume a framework in which aggregate household spending depends linearly on wealth, the underlying state variable. These studies have given rise to many estimates of the wealth effect. In a general equilibrium setting, however, both...

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 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...

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 study the role of asset revaluation in the monetary transmission mechanism. We build an analytical heterogeneous-agents model with two main ingredients: i) rare disasters; ii) heterogeneous beliefs. The model captures time-varying risk premia and precautionary savings in a setting that nests...

Recent fluctuations of financial markets, especially, stock markets fluctuations, have revived the interest concerning the dynamics of real economic activity, namely, of private consumption. In this work, the role of stock market as a determinant of private consumption is analyzed, namely, by...