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I test conditional implications of linear asset pricing models in which variables reflecting changing composition of total wealth capture time-variation in the consumption risk exposures of asset returns. I estimate conditional moments of returns and factor risk prices nonparametrically and show that while the consumption risk of value stocks does increase relative to that of growth stocks in "bad'' times, their conditional expected returns do not. Consequently, imposing the conditional moment restrictions results in large pricing errors, virtually eliminating the advantage of conditional models over the unconditional ones. Thus, exploiting conditioning information to impose joint restrictions on the time-series and the cross-sectional properties of asset returns exposes an additional challenge for consumption-based asset pricing models. While the puzzle is robust to alternative measures of consumption risk, it may be less pronounced for models that rely on the long-run consumption risk encoded in the aggregate financial wealth.

Zonder onderwerpscode: economie

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Currency excess returns are predictable, more than stock returns, and about as much as bond returns. The average forward discount of the dollar against developed market currencies is the best predictor of average foreign currency excess returns earned by U.S. investors on a long position in a large basket of foreign currencies and a short position in the dollar. The predicted excess returns on baskets of foreign currency are strongly counter-cyclical because they inherit the cyclical properties of the average forward discount. This counter-cyclical dollar risk premium compensates U.S. investors for taking on U.S.-specific risk in foreign exchange markets by shorting the dollar. Macroeconomic variables such as the rate of U.S. industrial production growth increase the predictability of average foreign currency excess returns even when controlling for the forward discount.

Zonder onderwerpscode: economie

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We estimate a structural model of household liquidity management in the presence of long-term mortgages. Households face counter-cyclical idiosyncratic labor income uncertainty and borrowing constraints, which affect optimal choices of leverage, precautionary saving in liquid assets and illiquid home equity, debt repayment, mortgage refinancing, and default. Taking the observed historical path of house prices, aggregate income, and interest rates as given, the model quantitatively accounts for the run-up in household debt and consumption boom prior to the financial crisis, their subsequent collapse, and mild recovery following the Great Recession, especially among the most constrained households.

Zonder onderwerpscode: economie

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Recent empirical evidence suggests that job polarization associated with skill-biased technological change accelerated during the Great Recession. We use a standard neoclassical growth framework to analyze how business cycle fluctuations interact with the long-run transition towards a skill-intensive technology. In the model, since adopting the new technology disrupts production, firms prefer to do so in recessions, when profits are low. Similarly, workers also tend to learn new skills during downturns. As a result, recessions are deeper during periods of technological transition, but they also speed up adoption of the new technology. We document evidence for these mechanisms in the data. Our calibrated model is able to match both the long-run downward trend in routine employment and the dramatic impact of the Great Recession. We also show that even in the absence of the Great Recession the routine employment share would have reached the observed level by the year 2012.

Zonder onderwerpscode: economie