Macro-Finance

John Cochrane

No 22485, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Macro-finance addresses the link between asset prices and economic fluctuations. Many models reflect the same rough idea: the market's ability to bear risk varies over time, larger in good times, and less in bad times. Models achieve this similar result by quite different mechanisms, and I contrast their strengths and weaknesses. I outline how macro-finance models may illuminate macroeconomics, by putting time-varying risk aversion, risk-bearing capacity, and precautionary savings at the center of recessions rather than variation in “the” interest rate and intertemporal substitution. I emphasize unsolved questions and profitable avenues for research.

JEL-codes: E00 G10 G12 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-ifn and nep-mac
Note: AP EFG
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Published as John H. Cochrane, 2017. "Macro-Finance," Review of Finance, European Finance Association, vol. 21(3), pages 945-985.

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Journal Article: Macro-Finance (2017)
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