In this paper, we test whether labor-hoarding environments with basic and augmented laws of motion provide an adequate explanation for observed business cycle dynamics. The basic law of motion assumes that the information set used by economic agents to forecast future forcing variables includes...

This paper gauges the causal relationship between external and budget deficits by using Blanchard's overlapping generations model. This model sests the twin deficits hypothesis (i.e. there is a positive relationship between the deficits) and the Ricardian equivalence hypothesis (i.e. there is no...

This paper assesses the plausibility of popular models of the monetary transmission mechanism for the G7 countries. For this purpose, flexible structural vector autoregressions are used to relaxe the restrictions behind the traditional identifying schemes of monetary-policy shocks and their...

This paper documents the relative importance of global and country-specific shocks for international business cycles. For this purpose, we rely on a symmetric two-country, dynamic, general-equilibrium model with costly, incomplete, international financial markets. We also relate exogenous...

This paper analyzes the important time variation in U.S. aggregate portfolio allocations. To do so, we first use flexible descriptions of preferences and investment opportunities to derive optimal decision rules that nest tactical, myopic, and strategic portfolio allocations. We then compare...

In this paper we gauge consumption and portfolio shares, rather than the traditional pricing implications. We study both aggregated (financial, tangible, and human) and disaggregated (deposits, stocks, insurance, and pensions) assets. The empirical shares are computed from recent aggregate...

This paper evaluates the international integration hypothesis, that is, that risk-adjusted anticipated returns are identical, even when financial instruments are traded in different countries. Under time-varying conditional volatility, this hypothesis is tested by verifying the equality between...

This paper gauges consumption and portfolio shares for aggregate assets (i.e. financial, tangible, and human assets) and disaggregated assets (i.e. deposits, stocks, and reserves for life insurance and pensions), rather than traditional underlying pricing implications for stocks. Hence, our...

The permanent income hypothesis under certainty equivalence implies that optimal consumption is more volatile than labour income, when labour income is positively autocorrelated in first differences. Empirically, certainty equivalence is rejected because observed consumption is excessively...

The permanent income hypothesis under certainty equivalence yields a martingale consumption process. Empirically, this hypothesis is rejected because consumption is excessively sensitive to anticipated income. One approach to account for excess sensitivity is to relax certainty equivalence by...