U.S. investors allocate 30-40% of their financial asset portfolio in the stock of the company they work for. Such a portfolio flies in the face of standard portfolio theory, which prescribes that an investor should hold less of a financial asset that is positively correlated with her...

This paper develops a dynamic stochastic general equilibrium monetary portfolio choice model that accomplishes two objectives. First, it provides a theory of currency risk premia based on a weak and plausible form of fiscal nonneutrality. Domestic and foreign bonds become imperfect substitutes,...

Evidence of stock-return predictability by financial ratios is still controversial, as documented by inconsistent results for in-sample and out-of-sample regressions and by substantial parameter instability. This article shows that these seemingly incompatible results can be reconciled if the...

We construct a new data set of consumption and income data for the largest U.S. metropolitan areas, and we show that the extent of risk-sharing between regions varies substantially over time. In times when US housing collateral is scarce nationally, regional consumption is about twice as...

In a model with housing collateral, the ratio of housing wealth to human wealth shifts the conditional distribution of asset prices and consumption growth. A decrease in house prices reduces the collateral value of housing and increases household exposure to idiosyncratic risk. The conditional...

Standard theory shows that sterilized foreign exchange interventions do not affect equilibrium prices and quantities, and that domestic and foreign currency denominated bonds are perfect substitutes. This paper shows that when fiscal policy is not sufficiently flexible in response to spending...