Consumption and Expected Asset Returns Without Assumptions About Unobservables

Karl Whelan ()

No 4/RT/06, Research Technical Papers from Central Bank of Ireland

Abstract: If asset returns are predictable, then rational expectations and the arithmetic of budget constraints together imply that these predictable changes in returns should affect current consumption. This paper presents a new framework linking consumption, income, and observable assets to expectations of future asset returns. Relative to previous work on this topic, the framework proposed in this paper has a number of advantages including not relying on untestable assumptions concerning unobservable variables and not requiring estimation of unknown parameters to arrive at a forecasting variable.

JEL-codes: E21 G12 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2006-05
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https://centralbank.ie/docs/default-source/publica ... whelan).pdf?sfvrsn=4 (application/pdf)

Related works:
Journal Article: Consumption and expected asset returns without assumptions about unobservables (2008)
Working Paper: Consumption and Expected Asset Returns without Assumptions About Unobservables (2006)
Working Paper: Consumption and expected asset returns without assumptions about unobservables (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:4/rt/06

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