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Macro-Finance

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  • John H. Cochrane

Abstract

Macro-finance addresses the link between asset prices and economic fluctuations. Many models reflect the same rough idea: the market's ability to bear risk varies over time, larger in good times, and less in bad times. Models achieve this similar result by quite different mechanisms, and I contrast their strengths and weaknesses. I outline how macro-finance models may illuminate macroeconomics, by putting time-varying risk aversion, risk-bearing capacity, and precautionary savings at the center of recessions rather than variation in “the” interest rate and intertemporal substitution. I emphasize unsolved questions and profitable avenues for research.

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  • John H. Cochrane, 2016. "Macro-Finance," NBER Working Papers 22485, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22485
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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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