Recursive utility models of the type introduced by Kreps and Porteus (1978) are used extensively in applied research in macroeconomics and asset pricing in environments with uncertainty. These models represent preferences as the solution to a nonlinear forward-looking difference equation with a...

Asset pricing theory has long recognized that financial markets compensate investors who are exposed to some components of uncertainty. This is where macroeconomics comes into play. The economy-wide shocks, the primary concern of macroeconomists, by their nature are not diversifiable. Exposures...

Sparked by the recent “great recession†and the role of financial markets, considerable interest exists among researchers within both the academic community and the public sector in modeling and measuring systemic risk. In this essay I draw on experiences with other measurement agendas...

I explore methods that characterize model-based valuation of stochastically growing cash flows. Following previous research, I use stochastic discount factors as a convenient device to depict asset values. I extend that literature by focusing on the impact of compounding these discount factors...

We present a novel approach to depicting asset pricing dynamics by characterizing shock exposures and prices for alternative investment horizons. We quantify the shock exposures in terms of elasticities that measure the impact of a current shock on future cash-flow growth. The elasticities are...

Dynamic stochastic equilibrium models of the macro economy are designed to match the macro time series including impulse response functions. Since these models aim to be structural, they also have implications for asset pricing. To assess these implications, we explore asset pricing counterparts...

In a Markov decision problem with hidden state variables, a posterior distribution serves as a state variable and Bayes' law under an approximating model gives its law of motion. A decision maker expresses fear that his model is misspecified by surrounding it with a set of alternatives that are...

This paper describes methods for conveniently formulating and estimating dynamic linear econometric models under the hypothesis of rational expectations. An econometrically convenient formula for the cross-equation rational expectations restrictions is derived. Models of error terms and the role...