Stock market price/earnings ratios should be influenced by demography. Since demography is predictable, stock returns should be as well. We provide a simple stochastic OLG model with a cyclical structure that generates cyclical P/E ratios. We calibrate the model to roughly fit the cyclical...

This paper studies the role of credit market development in an economy with credit frictions. I examine how the provision of credit in connection with collateral assets affects both economic performance and business cycle volatility. First, I analyse the macroeconomic implications of an...

House prices have risen quite sharply since 2000. Coming on the heels of a stock market crash, many analysts have raised the specter of collapse in house prices and have conjured up dire consequences from such a collapse. This article examines the extent of the house price rise, whether there...

We explore the relationship between sticky wages and risk. Like operating leverage, sticky wages are a source of risk for the firm. Firms, industries, or times with especially high or rigid wages are especially risky. If wages are sticky then wage growth should negatively forecast future stock...

In standard models wages are too volatile and returns too smooth. We make wages sticky through infrequent resetting, resulting in both (i) smoother wages and (ii) volatile returns. Furthermore, the model produces other puzzling features of financial data: (iii) high Sharpe Ratios, (iv) low and...

This paper takes a deeper look at the measurement of the consumption–wealth ratio and analyzes its ability to capture variations in expected future stock returns. I find evidence of stock return predictability by taking a different approach than predictive regressions.

Este artículo presenta una revisión de la relación entre la prima por riesgo ex post del mercado accionario y los ciclos económicos observados en Colombia recurriendo a la metodología Hodrick-Prescott. Con información trimestral desde el cuarto trimestre de 2001 al tercer trimestre de...

The paper examines three aspects of a financial crisis of domestic origin. The first section studies the evolution of a debt-financed consumption boom supported by rising asset prices, leading to a credit crunch and fluctuations in the real economy, and, ultimately, to debt deflation. The next...

ABSTRACT This article investigates the relationship between ex-post Equity Risk Premium (ERP) on the Colombian stock market and the economic cycles observed in the country using methodologies based on the Hodrick-Prescott and Kalman filters. Accordingly, a short-term econometric model is put...

An extensive literature has analyzed the implications of hidden shifts in the dividend growth rate. However, corresponding research on learning about growth persistence is completely lacking. Hidden persistence is a novel way to introduce long-run risk into standard business-cycle models of...