We present an econometric procedure for calibrating no-arbitrage term structure models in a way that is time-consistent and robust to measurement errors. Typical no-arbitrage models are time-inconsistent because their parameters are assumed constant for pricing purposes despite the fact that the...

We develop and empirically explore a model of the term structure that captures as well as possible the time-series dynamics of a set of state variables and fits exactly the date-to-date cross-sections of bond prices. We construct our model in two stages. In the first stage we use a flexible...

We ask how idiosyncratic labor-market risk varies over the business cycle. A difficulty in addressing this question is the limited time-series dimension of existing panel data sets. We address this difficulty by developing a GMM estimator which conditions on the macroeconomic history experienced...

This paper investigates the welfare costs of business cycles in a heterogeneous agent, overlapping generations economy which is distinguished by idiosyncratic labor market risk. Aggregate variation arises both in terms of aggregate productivity shocks and countercyclical variation in the...

What is the effect of non-tradeable idiosyncratic risk on asset-market risk premiums? Constantinides and Duffie (1996) and Mankiw (1986) have shown that risk premiums will increase if the idiosyncratic shocks become more volatile during economic contractions. We add two important ingredients to...

The authors investigate the small sample properties of three alternative generalized method of moments estimators of asset pricing models. The estimators that they consider include ones in which the weighting matrix is iterated to convergence and ones in which the weighting matrix is changed...

We incorporate costly external finance in a production based asset pricing model and investigate whether financing frictions are quantitatively important for pricing a cross-section of expected returns. We show that the common assumptions about the nature of the financing frictions are captured...

the consequences of this policy for economy-wide quantities such as investment and consumption. Contrary to conventional wisdom we find that changes in tax policy have only a small effect on equilibrium levels of corporate leverage. The intuition lies in the endogenous adjustment of debt prices...

Uncertainty plays a key role in economics, finance, and decision sciences. Financial markets, in particular derivative markets, provide fertile ground for understanding how perceptions of economic uncertainty and cashflow risk manifest themselves in asset prices. We demonstrate that the variance...