A Markov-switching model of postwar quarterly real GNP growth is used to examine the duration dependence of business cycles. It extends the Hamilton model and the duration-dependent model of Durland and McCurdy, and compares quite favorably to simpler models in out-of-sample forecasting. When an...

This paper investigates the relationship between portfolio choice and labor income risk in the National Longitudinal Survey of Youth 1979 Cohort. Permanent income risk (variability of shocks to income that have permanent effect) significantly reduces the share of risky assets in the household's...

A recent article by Ben Bernanke (1984) tests the rational expectations-permanent income hypothesis using panel data on automobile expenditures. He finds no evidence refuting the hypothesis. This paper incorporates a threshold adjustment process into Bernanke's model. Estimations based on a...

We study a Lucas asset-pricing model that is standard in all respects, except that the representative agent's subjective beliefs about endowment growth are distorted. Using constant relative risk-aversion (CRRA) utility, with a CRRA coefficient below 10; fluctuating beliefs that exhibit, on...

This paper demonstrates that negative serial correlation in long-horizon stock returns is consistent with an equilibrium model of asset pricing. When investors display only a moderate desire to smooth their consumption, commonly used measures of mean reversion in stock prices calculated from...

This paper investigates the ability of a representative agent model with time separable utility to explain the mean vector and the covariance matrix of the risk free interest rate and the return to leveraged equity in the stock market. The paper generalizes the standard calibration methodology...

We study a Lucas asset pricing model that is standard in all respects representative agent's subjective beliefs about endowment growth are distorted. Using constant-relative-risk-aversion (CRRA) utility a CRRA coefficient below ten that exhibit, on average, excessive pessimism over expansions...

Recent empirical studies have found that stock returns contain substantial negative serial correlation at long horizons. We examine this finding with a series of Monte Carlo simulations in order to demonstrate that it is consistent with an equilibrium model of asset pricing. When investors...

The Euler equations derived from a broad range of intertemporal asset pricing models, together with the first two unconditional moments of asset returns, imply a lower bound on the volatility of the intertemporal marginal rate of substitution. We develop and implement statistical tests of these...