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Disaggregation Reverses the Risk-Free Rate Puzzle

Author

Listed:
  • Matthew S. Wilson

    (Economics Department, University of Richmond, 102 UR Dr, Richmond, VA 23173)

Abstract

In the macro data, it appears that people are buying too many bonds. They help agents smooth consumption, but the rate of return is low and aggregate consumption is already very smooth. However, consumption at the household level is far more volatile. This makes bonds more appealing. Instead of solving the puzzle, the main result is reversed: households are not buying enough bonds. Under some specifcations, the unconditional Euler equation is not rejected, but in those cases the forecast errors are inconsistent with rational expectations.

Suggested Citation

  • Matthew S. Wilson, 2025. "Disaggregation Reverses the Risk-Free Rate Puzzle," Annals of Economics and Finance, Society for AEF, vol. 26(2), pages 643-665, November.
    • Handle: RePEc:cuf:journl:y:2025:v:26:i:2:wilson
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    References listed on IDEAS

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    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G1 - Financial Economics - - General Financial Markets

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