Financial Markets and the Real Economy

88 Pages Posted: 29 Sep 2006 Last revised: 3 Aug 2022

See all articles by John H. Cochrane

John H. Cochrane

Hoover Institution; National Bureau of Economic Research (NBER)

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Date Written: March 2005

Abstract

I survey work on the intersection between macroeconomics and finance. The challenge is to find the right measure of "bad times," rises in the marginal value of wealth, so that we can understand high average returns or low prices as compensation for assets' tendency to pay off poorly in "bad times." I survey the literature, covering the time-series and cross-sectional facts, the equity premium, consumption-based models, general equilibrium models, and labor income/idiosyncratic risk approaches.

Suggested Citation

Cochrane, John H., Financial Markets and the Real Economy (March 2005). NBER Working Paper No. w11193, Available at SSRN: https://ssrn.com/abstract=684719

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