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Asset Pricing Explorations for Macroeconomics

In: NBER Macroeconomics Annual 1992, Volume 7

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  • John H. Cochrane
  • Lars Peter Hansen

Abstract

In this paper we argue that financial data are a useful proving ground for macroeconomic models, and we explore the channels that link asset market data to such models. We use Hansen and Jagannathan's bounds on the mean and standard deviation of discount factors to survey several asset pricing puzzles. We then extend the bounds to reflect the correlation of discount factors with asset returns and to characterize conditional moments of discount factors. These characterizations help us to understand the behavior of a variety of models studied in the literature. We also incorporate borrowing constraints into the calculations. The borrowing constraints loosen the required properties of aggregate measurements of intertemporal marginal rates of substitution, but also sharpen the implications of asset market data for the marginal rates of substitution of unconstrained individuals.

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This chapter was published in:

  • Olivier Jean Blanchard & Stanley Fischer, 1992. "NBER Macroeconomics Annual 1992, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number blan92-1, Ekim.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10992.

    Handle: RePEc:nbr:nberch:10992

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