This paper presents estimates of key preference parameters of the Epstein and Zin (1989, 1991) and Weil (1989) (EZW) recursive utility model, evaluates the model's ability to fit asset return data relative to other asset pricing models, and investigates the implications of such estimates for the...

We explicitly solve for the aggregate asset prices in a general equilibrium Lucas endowment economy with two agents who are heterogeneous in their time-nonseparable preferences. Time-nonseparability is modeled either as internal or external habit preferences. Equilibrium quantities -- equity...

We analyze optimal monetary policy and its implications for asset prices, when aggregate demand has inertia and responds to asset prices with a lag. If there is a negative output gap, the central bank optimally overshoots aggregate asset prices (asset prices are initially pushed above their...

This paper suggests an affine term structure model of real interest rates to predict changes in real consumption growth. The model is estimated, jointly, by real interest rates and consumption data, and it is found to be consistent with the consumption smoothing hypothesis. The paper shows that...

We econometrically estimate and test a consumption-based asset pricing model with stochastic internal habit. The model departs from existing deterministic internal habit models by introducing shocks to the coefficients in the distributed lag specification of consumption habit and consequently an...

The consumption growth data strongly favor a two-regime specification. The high volatility, low growth regime is associated with deep recessions: the Great Depression, the recession of 1937-1938, the post-war recession of 1945, and the most recent financial crisis. I develop parsimonious models...

The last 20 years have been marked by a sharp rise in international demand for U.S. reserve assets, or safe stores-of-value. We argue that these trends in international capital flows are likely to be a boon for some (by a lot) but a bane for others (by less). Conversely, a sell-off of foreign...

We study asset-pricing implications of innovation in a general-equilibrium overlapping- generations economy. Innovation increases the competitive pressure on existing firms and workers, reducing the profits of existing firms and eroding the human capital of older workers. Due to the lack of...

The wealth effects on consumption are a subject of continuing interest to economists. The conventional wisdom states that fluctuations in household wealth have caused major fluctuations in economic activity. This study analyses the macroeconomic dynamics of wealth effects in India and examines...

We develop a parsimonious econometrics methodology to estimate individual's portfolio return process accounting for self-selection bias from portfolio adjustment; our approach is useful to assist investors learning own return process profile. We study three components to characterize investor's...