We explore how the introduction of habit preferences into the simple intertemporal consumption-based capital asset pricing model "solves" the equity premium and risk-free rate puzzles. Our exploration employs spectral utility functions that decompose agents' preferences for consumption...

We develop a business cycle model in which consumption goods, physical capital and human capital are produced in separate sectors.

Is the risk aversion parameter in the simple intertemporal consumption CAPM "small" as in Hansen and Singleton (1982,1983), or is it that its reciprocal, the intertemporal elasticity of substitution, is small, as in Hall (1988)? This paper attributes the disparate estimates of this fundamental...