The main features of households' attention to savings are rationalized by a model of information aversion, a preference-based fear of receiving flows of news. In line with the empirical evidence, information averse investors observe the value of their portfolios infrequently; inattention is more...

Buyout booms form in response to declines in the aggregate risk premium. We document that the equity risk premium is the primary determinant of buyout activity rather than credit-specific conditions. We articulate a simple explanation for this phenomenon: a low risk premium increases the present...

The real exchange rate (RER) measures relative price levels across countries, capturing deviations from purchasing power parity (PPP). RER is a key variable in international macroeconomic models as it is central to equilibrium conditions in both goods and asset markets. It is also one of the...

Since the Global Financial Crisis, rates on interest rate swaps have fallen below maturity matched U.S. Treasury rates across different maturities. Swap rates represent future uncollateralized borrowing between banks. Treasuries should be expensive and produce yields that are lower than those of...

We revisit the recent literature on persistent deviations from covered interest parity (CIP) by showing theoretically that CIP violations imply arbitrage opportunities only if uncollateralized interbank lending rates are riskless. In the absence of observable riskless discount rates, we extract...

The currency market features a relatively small cross-section and conditional expected returns can be characterized by only a few signals - interest differentials, trend, and mean-reversion. We exploit these properties to construct a conditional projection of the stochastic discount factor onto...

We use prices of equity index options to quantify the impact of extreme events on asset returns. We define extreme events as departures from normality of the log of the pricing kernel and summarize their impact with high-order cumulants: skewness, kurtosis, and so on. We show that high-order...

Identification problems arise naturally in forward-looking models when agents observe more than economists. We illustrate the problem in several New Keynesian and macro-finance models in which the Taylor rule includes a shock unseen by economists. We show that identification of the rule's...

We propose two metrics for asset pricing models and apply them to representative agent models with recursive preferences, habits, and jumps. The metrics describe the pricing kernel's dispersion (the entropy of the title) and dynamics (time dependence, a measure of how entropy varies over...

The closed and open economy literatures work on evaluating the role of real rigidities, but in parallel. This paper brings the two literatures together. We use international price data and exchange rate shocks to evaluate the importance of real rigidities in price setting. We show that...