Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence

50 Pages Posted: 8 Jun 2012

See all articles by Emi Nakamura

Emi Nakamura

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Dmitriy Sergeyev

Bocconi University

Jon Steinsson

Columbia University - Graduate School of Arts and Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: June 2012

Abstract

We provide new estimates of the importance of growth rate and uncertainty shocks for developed countries. The shocks we estimate are large and correspond to well-known macroeconomic episodes such as the Great Moderation and the productivity slowdown. We compare our results to earlier estimates of “long-run risks” and assess the implications for asset pricing. Our estimates yield greater return predictability and a more volatile price-dividend ratio. In addition, we can explain a substantial fraction of cross-country variation in the equity premium. An advantage of our approach, based on macroeconomic data alone, is that the parameter estimates cannot be viewed as backward engineered to fit asset pricing data. We provide intuition for our results using the recently developed framework of shock-exposure and shock-price elasticities.

Suggested Citation

Nakamura, Emi and Sergeyev, Dmitriy and Steinsson, Jon, Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence (June 2012). NBER Working Paper No. w18128. Available at SSRN: https://ssrn.com/abstract=2079921

Emi Nakamura (Contact Author)

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dmitriy Sergeyev

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Jon Steinsson

Columbia University - Graduate School of Arts and Sciences - Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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