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Working Paper
Idiosyncratic risk and the equity premium: evidence from the Consumer Expenditure Survey
Cogley, Timothy (1998)
This paper uses household consumption data to investigate whether uninsurable idiosyncratic risk accounts for the equity premium. The analysis complements and extends prior empirical work by relaxing maintained assumptions about idiosyncratic income shocks. Following Mankiw (1986), the paper develops an equilibrium factor model in which risk premia depend on the covariance between an asset's return and certain moments of the cross-sectional distribution for consumption growth. Cross-sectional consumption factors are constructed using data from the Consumer Expenditure Survey, but they do ...
Working Papers in Applied Economic Theory , Paper 98-07

Journal Article
Asset price bubbles
Lansing, Kevin J. (2007)
Economists use the term "bubble" to describe an asset price that has risen above the level justified by economic fundamentals, as measured by the discounted stream of expected future cash flows that will accrue to the owner of the asset. The dramatic rise in U.S. stock prices during the late 1990s, followed similarly by U.S. house prices during the early 2000s, are episodes that have both been described as "bubbles." This Economic Letter describes some research that attempts to account for the behavior of asset price bubbles.
FRBSF Economic Letter

Journal Article
Speculative bubbles and overreaction to technological innovation
Lansing, Kevin J. (2008)
This Economic Letter examines some historical links between speculative bubbles, technological innovation, and capital misallocation.
FRBSF Economic Letter

Journal Article
Banking on Basel : an alternative for capital requirements
Robinson, Kenneth J.; Killgo, Kory A. (2006-07)
Equity capital represents a bank?s net worth?the difference between its assets and liabilities. Put another way, it?s the value of assets financed by the bank?s owners, rather than depositors or other sources of funds. Capital serves as a buffer to absorb losses and prevent failures and figures prominently in the banking industry?s ability to lend.
Southwest Economy , Issue Jul , Pages 11-13, 16

Journal Article
Asset price booms and current account deficits
Bergin, Paul R. (2011)
Before the global financial crisis of 2007?2009, the United States and several other countries posted large current account deficits. Many of these countries also experienced asset price booms. Evidence suggests the two developments were linked. Rising asset values in the United States permitted households to borrow more easily to boost consumption, while the net sale of debt securities abroad financed current account deficits. The fall in some asset prices since the crisis can make it easier to reduce current account imbalances.
FRBSF Economic Letter

Journal Article
A Minsky meltdown: lessons for central bankers
Yellen, Janet L. (2009)
This Economic Letter is adapted from a speech delivered by Janet L. Yellen, president and CEO of the Federal Reserve Bank of San Francisco, to the 18th Annual Hyman P. Minsky Conference on the State of the U.S. and World Economies on April 16, 2009, in New York City.
FRBSF Economic Letter

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

Journal Article
Bubbles tomorrow and bubbles yesterday, but never bubbles today?
Williams, John C. (2013)
Standard asset price models have generally failed to detect bubbles, with enormous costs to the economy. Economists are now creating promising new models that account for bubbles by relaxing the assumption of rational expectations and allowing people?s decisions to be driven by their perceptions of what the future may hold. ; This letter is adapted from a presentation by the president and CEO of the Federal Reserve Bank of San Francisco to the National Association for Business Economics in San Francisco, California, on September 9, 2013.
FRBSF Economic Letter

Journal Article
Monetary policy and asset markets: conference summary
Dennis, Richard (2008)
This Economic Letter summarizes the papers presented at a conference on "Monetary Policy and Asset Markets" held at the Federal Reserve Bank of San Francisco on February 22, 2008. ; One of the papers focused on extracting information on policy changes from the interest rate term structure and on whether investors value those policy changes or view them as an additional source of risk to be hedged. Another paper examined the extent to which subjective expectations may explain certain asset price puzzles. A third paper looked at the housing sector, quantifying the factors that drive residential ...
FRBSF Economic Letter

Working Paper
Risk, uncertainty, and asset prices
Bekaert, Geert; Engstrom, Eric; Xing, Yuhang (2005)
We identify the relative importance of changes in the conditional variance of fundamentals (which we call "uncertainty") and changes in risk aversion ("risk" for short) in the determination of the term structure, equity prices, and risk premiums. Theoretically, we introduce persistent time-varying uncertainty about the fundamentals in an external habit model. The model matches the dynamics of dividend and consumption growth, including their volatility dynamics and many salient asset market phenomena. While the variation in dividend yields and the equity risk premium is primarily driven by ...
Finance and Economics Discussion Series , Paper 2005-40

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