Robust Aggregate Implications of Stochastic Discount Factor Volatility

Topics:
Investment and Capital Markets
Tags:
Accumulation,
Finance,
Implication,
Investment,
National Bureau Of Economic Research,
Volatility
Source:
National Bureau of Economic Research

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Overview: The paper reveals that the stochastic discount factor seems volatile, but is this observation of any consequence for aggregate analysis of consumption, capital accumulation, output, etc. This paper outlines the standard frictionless model of aggregate consumption and capital accumulation with time-varying subjective probability adjustments, and obtains four implications for aggregate economic analysis. All four implications are consistent with empirical results reported here, and in the previous literature documenting stochastic discount factor volatility.

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Format: PDF | Size: 352KB | Date: Jan 2004 | Pages: 36

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