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Reconciling Macroeconomics and Finance for the U.S. Corporate Sector: 1929 to Present
We examine how to quantitatively reconcile the high volatility of market valuations of U.S. corporations with the relative stability of macroeconomic quantities since 1929. Macroeconomic and financial variables are measured in a consistent fashion using the Integrated Macroeconomic Accounts (IMA) of the United States. We first use a finance-style valuation model that builds on Campbell and Shiller (1987) to interpret fluctuations in the market value of U.S. corporations from 1929 to 2023, using these IMA data. We find that fluctuations in expected cash flows to firm owners have been the ...