Financial Markets and the Real Economy
88 Pages Posted: 29 Sep 2006 Last revised: 3 Aug 2022
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Financial Markets and the Real Economy
Financial Markets and the Real Economy
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.
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