We show how to construct arbitrage-free models of the term structure of interest rates in which various expectations hypotheses can hold. McCulloch (1993) provided a Gaussian non-Markovian example of the unbiased expectations hypothesis (U--EH), thereby contradicting the assertion by Cox,...

We analyze consumption and asset pricing with recursive preferences given by Kreps--Porteus stochastic differential utility (K--P SDU). We show that utility depends on two state variables: current consumption and a second variable (related to the wealth--consumption ratio) that captures all...

With a stochastic general equilibrium model, we highlight the role of both monetary policy and banks in determining the relationship between the federal funds rate and bank reserves. Monetary policy consists of a stochastic upward-sloping supply schedule for reserves, along with a discount...

We define rational bubbles to be securities with payoffs occurring in the infinitely distant future and investigate the behavior of bubble values. We extend our analysis to a setting of uncertainty. In an infinite-horizon arbitrage-free model of asset prices, we interpret the money market...