We develop a general equilibrium model of government policy choice in which stock prices respond to political news. The model implies that political uncertainty commands a risk premium whose magnitude is larger in weaker economic conditions. Political uncertainty reduces the value of the...

We calculate the costs and benefits of the largest ever US government intervention in the financial sector announced during the 2008 Columbus-day weekend. We estimate that this intervention increased the value of banks' financial claims by $130 billion (bn) at a taxpayers' cost of $21-$44...

Non-linear external habit persistence models, which feature prominently in the recent "equity premium" asset pricing and macroeconomics literature, generate counterfactual predictions in the cross-section of stock returns. In particular, we show that in the absence of cross-sectional...