Prices of riskfree bonds in any arbitrage-free environment are governed by a pricing kernel: given a kernel, we can compute prices of bonds of any maturity we like. We use observed prices of multi-period bonds to estimate, in a log- linear theoretical setting, the pricing kernel that gave rise...

The recent rise in the yen has been held out as a quot;solutionquot; to the persistent Japanese trade surplus. I estimate, instead, that the sharp rise in the yen through mid-1993 will lead the trade surplus to fall from a high of 3.7 percent of GNP in late 1992 to about 2.6 percent in 1995....

Despite enormous growth in international capital flows, capital-output ratios continue to exhibit substantial heterogeneity across countries. We explore the possibility that taxes, particularly corporate taxes, are a significant source of this heterogeneity. The evidence is mixed. Tax rates...

We use a fractional difference model to reconcile two features of yields on US government bonds with modem asset pricing theory: the persistence of the short rate and variability of the long end of the yield curve. We suggest that this process might arise from the response of the heterogeneous...

We provide a user's guide to exotic preferences: nonlinear time aggregators, departures from expected utility, preferences over time with known and unknown probabilities, risk-sensitive and robust control, hyperbolic discounting, and preferences over sets (temptations). We apply each to a number...

We provide a user's guide to exotic' preferences: nonlinear time aggregators, departures from expected utility, preferences over time with known and unknown probabilities, risk-sensitive and robust control, hyperbolic' discounting, and preferences over sets ( temptations'). We apply each to a...

We explore a variety of models and approaches to bond pricing, including those associated with Vasicek, Cox-Ingersoll-Ross, Ho and Lee, and Heath-Jarrow-Morton, as well as models with jumps, multiple factors, and stochastic volatility. We describe each model in a common theoretical framework and...

From 2004 to 2006, the FOMC raised the target federal funds rate by 4.25%, yet long-maturity yields and forward rates fell. We consider several possible explanations for this quot;conundrum.quot; The most likely, in our view, is a fall in the term premium, probably associated with some...

We consider the patterns in the predictability of interest rates expectations hypothesis (EH), and attempt to account for them with affine models. We make the following points: (i) Discrepancies in the data from the EH take a particularly simple form with forward rates: as theory suggests, the...

We summarize the class of recursive preferences. These preferences fit naturally with recursive solution methods and hold the promise of generating new insights into familiar problems. Portfolio choice is used as an example