I analyze monetary policy with interest on reserves and a large balance sheet. I show that conventional theories do not determine inflation in this regime, so I base the analysis on the fiscal theory of the price level. I find that monetary policy can peg the nominal rate, and determine expected...

In standard solutions, the new-Keynesian model produces a deep recession with deflation in a liquidity trap. The model also makes unusual policy predictions: Useless government spending, technical regress, and capital destruction have large multipliers. These predictions become larger as prices...

Mean-variance portfolio theory can apply to the streams of payoffs such as dividends following an initial investment, in place of one-period returns. This description is especially useful when returns are not independent over time and investors have non-marketed income. Investors hedge their...

I translate familiar concepts of discrete-time time-series to contnuous-time equivalent. I cover lag operators, ARMA models, the relation between levels and differences, integration and cointegration, and the Hansen-Sargent prediction formulas

Discount rate variation is the central organizing question of current asset pricing research. I survey facts, theories and applications. We thought returns were uncorrelated over time, so variation in price-dividend ratios was due to variation in expected cashflows. Now it seems all...

Bennett McCallum (2009), applying Evans and Honkapohja's (2001) results, argues that "learnability" can save New-Keynesian models from their indeterminacies. He claims the unique bounded equilibrium is learnable, and the explosive equilibria are not. However, he assumes that agents can directly...

In a recent Journal of Finance article, Kan and Zhou (1999) find that the 'Stochastic discount factor' methodology using GMM is markedly inferior to traditional maximum likelihood even in a simple test of the static CAPM with i.i.d. normal returns. This result has gained wide attention. However,...

Asset returns, it turns out, do not follow the Capital Asset Pricing Model, and are somewhat predictable over time. I survey and interpret the large body of recent work that adapts traditional portfolio theory to answer, what should an investor do about these new facts in finance? I survey the...

The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze long-term debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news...

Will the stock market provide high returns in the future as it has in the past? The average US stock return in the postwar period has been about 8% above treasury bill rates. But that average is poorly measured: The standard confidence interval extends from 3% to 13%. Furthermore, expected...