Our new model of consumption-based habit generates time-varying risk premia on bonds and stocks from loglinear, homoskedastic macroeconomic dynamics. Consumers' first-order condition for the real risk-free bond generates an exactly loglinear consumption Euler equation, commonly assumed in New...

"This paper decomposes excess return predictability in inflation-indexed and nominal government bonds into liquidity, market segmentation, real interest rate risk and inflation risk. We estimate a liquidity premium, which appears systematic in nature. It is around 40 to 70 bps during normal...