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Working Paper
Happiness maintenance and asset prices
Falato, Antonio (2008)
This paper constructs a simple dynamic asset pricing model which incorporates recent evidence on the influence of immediate emotions on risk preferences. Investors derive direct utility from both consumption and financial wealth and, consistent with the happiness maintenance feature documented by Isen (1999) and others, become more cautious toward their wealth in good times. Mild pro-cyclical changes in risk aversion over wealth cause large pro-cyclical fluctuations in the current price-dividend ratio which, due to general equilibrium restrictions, translate into counter-cyclical variation in ...
Finance and Economics Discussion Series , Paper 2008-19

Conference Paper
Monetary policy and stock market booms
Motto, Roberto; Rostagno, Massimo; Ilut, Cosmin; Christiano, Lawrence J. (2010)
Proceedings - Economic Policy Symposium - Jackson Hole

Journal Article
Monetary policy and asset price bubbles
Rudebusch, Glenn D. (2005)
The appropriate monetary policy response to an asset price bubble remains unclear and is one of the most contentious issues currently facing central banks. Some have argued that monetary policy should be used to contain or reduce an asset price bubble in order to alleviate its adverse consequences on the economy, while others have argued that such a policy would be both impractical and unproductive given real-world uncertainties about the nature or even existence of bubbles. This Economic Letter examines how policymakers might choose between alternative courses of action when confronted with ...
FRBSF Economic Letter

Working Paper
Estimating real and nominal term structures using Treasury yields, inflation, inflation forecasts, and inflation swap rates
Ritchken, Peter H.; Pennacchi, George; Haubrich, Joseph G. (2008)
This paper develops and estimates an equilibrium model of the term structures of nominal and real interest rates. The term structures are driven by state variables that include the short term real interest rate, expected inflation, a factor that models the changing level to which inflation is expected to revert, as well as four volatility factors that follow GARCH processes. We derive analytical solutions for the prices of nominal bonds, inflation-indexed bonds that have an indexation lag, the term structure of expected inflation, and inflation swap rates. The model parameters are estimated ...
Working Papers (Old Series) , Paper 0810

Speech
Asset-pricing puzzles, credit risk, and credit derivatives: a speech at the Conference on Credit Risk and Credit Derivatives, Washington, D.C., March 22, 2007
Kohn, Donald L. (2007)
Speech , Paper 283

Working Paper
Yield spreads as predictors of economic activity: a real-time VAR analysis
Kishor, N. Kundan; Koenig, Evan F. (2010)
We undertake a real-time VAR analysis of the usefulness of the term spread, the junk-bond spread, the ISM's New Orders Index, and broker/dealer equity for predicting growth in non-farm employment. To get around the "apples and oranges" problem described by Koenig, Dolmas and Piger (2003), we augment each VAR we consider with a flexible state-space model of employment revisions. This methodology produces jobs forecasts consistently superior to those obtained using conventional VAR analysis. They are also superior to Federal Reserve Greenbook forecasts and to median forecasts from the Survey ...
Working Papers , Paper 1008

Working Paper
Pricing model performance and the two-pass cross-sectional regression methodology
Robotti, Cesare; Kan, Raymond; Shanken, Jay (2009)
Since Black, Jensen, and Scholes (1972) and Fama and MacBeth (1973), the two-pass cross-sectional regression (CSR) methodology has become the most popular approach for estimating and testing asset pricing models. Statistical inference with this method is typically conducted under the assumption that the models are correctly specified, that is, expected returns are exactly linear in asset betas. This assumption can be a problem in practice since all models are, at best, approximations of reality and are likely to be subject to a certain degree of misspecification. We propose a general ...
FRB Atlanta Working Paper , Paper 2009-11

Speech
Monetary policy and asset prices revisited: a speech at the Cato Institute's 26th Annual Monetary Policy Conference, Washington, D.C., November 19, 2008
Kohn, Donald L. (2008)
Speech , Paper 434

Working Paper
The Informational Centrality of Banks
Foley-Fisher, Nathan; Gorton, Gary; Verani, Stéphane (2024-02-02)
The equity and debt prices of large nonbank firms contain information about the future state of the banking system. In this sense, banks are informationally central. The amount of this information varies over time and over equity and debt. During a financial crisis banks are, by definition of a crisis, at risk of failure. Debt prices became about 50 percent more informative than equity prices about the future state of the banking system during the financial crisis of 2007-2009. This was partly due to investors' fears that banks might not be able to refinance the firms' debt.
Finance and Economics Discussion Series , Paper 2024-006

Working Paper
Spillovers across U.S. financial markets
Sack, Brian P.; Rigobon, Roberto (2003)
Movements in the prices of different assets are likely to directly influence one another. This paper identifies the contemporaneous interactions between asset prices in U.S. financial markets by relying on the heteroskedasticity in their movements. In particular, we estimate a "structural-form GARCH" model that includes the short-term interest rate, the long-term interest rate, and the stock market. The results indicate that there are strong contemporaneous interactions between these variables. Accounting for this behavior is critical for interpreting daily changes in asset prices and for ...
Finance and Economics Discussion Series , Paper 2003-13

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