- "Term structures of asset prices and returns," with Boyarchenko
and Chernov, paper,
We look at term structures for a range of cash flows: currencies,
equity indexes and dividends, consumer prices, and so on. Their
term structures reflect properties of the dollar pricing kernel and
of the growth rate of the cash flow. We use the KLV
model to illustrate how interaction of the two components can
deliver term structures with a wide range of levels and shapes.
- "Risk and ambiguity in models of business cycles," with Ferriere
and Zin, paper,
conference slides, DB
slides. Published JME 2014 (CRN conference volume).
Carnegie-Rochester-NYU conference draft of a paper that puts
variations in aggregate uncertainty into a streamlined business
cycle model. We explore the possibility that increases in
uncertainty might account for the magnitude and persistence of the
last recession. We get neither in this model, but point to
alternatives that might do better. A byproduct is a loglinear
approximation that illustrates how the model works.
Taylor rules in macro-finance models," with Chernov and Zin, paper,
A short paper that characterizes the structure needed to identify a
Taylor rule in a macro-finance model.
and low-frequency capital flows," with Cooley and Henriksen, conference
code for data work. Published JIE 2014. We've been interested
in low-frequency movements in capital flows (they're extremely
persistent) and consider demography as a possible driving force.
"Sources of entropy in representative agent models," with Chernov
and Zin, paper
Published JF 2014. The paper is part methodology and part intuitive
explanation for how popular representative agent models work. We
propose two metrics for summarizing the properties of asset pricing
models and apply them to representative agent models with recursive
preferences, habits, and jumps. The metrics describe the pricing
kernel's dispersion (the entropy of the title) and dynamics
(horizon dependence, a measure of how entropy varies over different
time horizons). Most popular models generate lots of entropy, but
several have difficulty doing it without also producing too much
horizon dependence. The paper also includes a dummies guide to
influential related work by Alvarez-Jermann and Hansen-Scheinkman.
"Monetary policy and the uncovered interest rate parity puzzle,"
with Gavazzoni, Telmer, and Zin, paper
There's a longstanding issue in international finance, that high
interest rate currencies tend to rise in value. That gives
investors a double kick (high rate, appreciation on average): what
people have come to call the carry trade. Presumably the excess
return from this strategy reflects risk of some sort. We build a
relatively simple macro model in which the risk can be traced to
monetary policy. It's an example more than a complete explanation,
but suggests where you might look for a solution.
"Disasters implied by equity index options," with Chernov and
. Published JF 2011. The possibility of large adverse
events -- "disasters" -- can generate much larger risk premiums
than you would get with normal (Gaussian) risks. The question is
how much of this kind of thing is plausible. If you believe, as we
do, that most risk reflects the economy as a whole, the difficulty
in assessing the probabilities of extreme events is that they don't
happen often enough to allow precise estimates. We back the
probabilities out of equity index options, which value such risks
whether or not they occur in our sample. The resulting disaster
probabilities are much smaller than those calculated by Barro and
"Cyclical component of US asset returns," with Routledge and Zin,
We look at two old facts -- the stock market and the yield spread
both lead the economy -- and note that they imply excess returns
lead the cycle. We construct an exchange economy with similar
features, a close relative of the Bansal-Yaron model in which
changes in risk lead directly to changes in expected growth.
"Asset prices in business cycle analysis," with Routledge and Zin,
First step toward a quasi-analytic solution of a business cycle
model with recursive preferences. We know more now than we did
then, will fix this up in some form in the near future.
"Taxes and the global allocation of capital," with Henriksen and
Published JME, 2008. We see significant differences across
countries in investment rates (ratio of investiment to GDP) and
capital intensity (ratio of capital to GDP). We attribute some of
this to differences in capital taxes. The main issue, here, is
explaining why taxes based on revenue data are so different from
those derived from the tax code.
"Cracking the conundrum," with Wright, paper
Published Brookings Papers, 2007. We interpret movements at the
long end of the yield curve as reflecting, in large part, movements
in risk premiums. It's an old story, but we bring some new evidence
to bear on it.
"Current account fact and fiction," with Henriksen, Lambert, and
(US net worth,
saving, investment). We never did anything with this, but it makes
a useful point: that we're not really sure what international
capital flows are telling us. Inflows could be signs of good news
or they could be portents of disaster. As it turns out, disaster
did occur, but in our view for much different reasons.
preferences for macroeconomists," with Routledge and Zin, ms
. Published in the 2004 NBER Macro Annual, but the link
above has some corrections that were made after publication. The
idea is to review recent advances in the theory of recursive
preferences in user-friendly terms. Later papers with Zin and
others developed loglinear approximations further.
"Discrete time models of bond pricing," with Foresi and Telmer, paper
, NBER version
, Matlab files - Self-Extracting
. Published in a
volume edited by former NYU colleague Bruce Tuckman that seems to
have disappeared from sight. Bruce's fixed
is available, though, and very good. Our paper
is a review and synthesis of bond pricing models, including
Vasicek, CIR, HJM, and many others. The idea is to describe these
models in common language and simple terms, which we take to mean
pricing kernels in discrete time.
"Oil prices and the terms of trade," with Crucini, NBER version
in JIE, 2000. A model of the impact of oil prices on business
cycles, exchange rates, and capital flows. Mario is responsible for
the novel parts, including the treatment of oil exporters.
"Accounting for biases in Black-Scholes," with Foresi, Li, and Wu,
. We never got around to revising this
one, but it has a nice result, mostly due to Liuren: that the slope
and curvature of volatility smiles has a simple connection to the
skewness and kurtosis, respectively, of the risk-neutral
distribution. Based on a Gram-Charlier approximation.
- "Notes on Ross's recovery theorem,"
with Chernov, notes.
This is basically a dummies version of Borovicka, Hansen, and
Scheinkman's "Misspecified recovery," instigated by Mike's
discussion at Carnegie Mellon's annual macro-finance conference,
- "Notes on the price of risk," notes.
A running commentary on whether the price of risk is a meaningful
term. We say no. Instigated by Ian Martin, with input from Jarda
Borovicka, Mike Chernov, and Stan Zin.
- Borovicka, Hansen, and Scheinkman, "Misspecfied recovery," NBER
Summer Institute, July 10, 2015, slides.
- Walentin, "Business cycles and
mortgage spreads," NYU PhD alumni conference, May 31, 2013, slides.
- Alvarez and Dixit, "A real options
perspective on the euro," April 2013, Carnegie-Rochester-NYU
- Colacito, Croce, Ho, and Howard, "BKK
the EZ way," January 2013, AEA, San Diego, slides.
- Rabanal and Rubio-Ramirez,
"Low-frequency movements of real exchange rates," November 2012,
Atlanta Fed, slides,
- Gilchrist and Zakrajsek, "Credit
spreads and business cycle fluctuations," September 2012,
Becker-Friedman conference, slides.
- Engel, "The real exchange rate, real
interest rate, and risk premium," NBER IFM meeting, March 2011, slides.
- Kumhof, "International currency
portfolios," NBER IFM meeting, March 2011, slides.
- Arellano, Bai, and Kehoe, "Financial
crises and fluctuations in uncertainty," Gary Stern Conference,
Minneapolis Fed, April 2010, slides.
- Gourio, "Disaster risk and business
cycles," NBER EFG meeting, February 2010, slides.
- "Economics and Politics in Europe,"
remarks to NYU's Stern Political Economy Exchange, April 10, 2013,
- "Europe," remarks to NYU's
International Business Association, October 10, 2012, slides.
- "Problems and Progress in the Euro
Zone," G20 seminar, Challenges and Opportunities of the Global
Economy, Mexico City, September 21, 2012, slides.
- "Thinking about Mexico," remarks to
students at ITAM, Mexico City, September 20, 2012, slides.
Essays and op
and reality in Europe," Huffington Post, November 29, 2012.
euro: bad idea, poorly executed, hard to fix," with Kim
Schoenholtz, Huffington Post, October 15, 2012.
thinking about economic policy," with Tom Cooley, Vox EU,
November 9, 2011.
imbalances and the crisis," with Tom Cooley, WSJ, January 11,
for fiscal fitness," with Matt Richardson and Nouriel Roubini,
New York Post, January 16, 2009.
ambivalence," FT Forum, January 10, 2009.
money should have strings attached," with Viral Acharya and
Raghu Sundaram, FT Forum, January 6, 2009.