Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence
AbstractWe provide new estimates of the importance of growth-rate shocks and uncertainty shocks for developed countries. The shocks we estimate are large and correspond to well-known macroeconomic episodes such as the Great Moderation and the productivity slowdown. We compare our results to earlier estimates of "long-run risks" and assess the implications for asset pricing. Our estimates yield greater return predictability and a more volatile price-dividend ratio. In addition, we can explain a substantial fraction of cross-country variation in the equity premium. An advantage of our approach, based on macroeconomic data alone, is that the parameter estimates cannot be viewed as backward engineered to fit asset pricing data. We provide intuition for our results using the recently developed framework of shock-exposure and shock-price elasticities.
CitationNakamura, Emi, Dmitriy Sergeyev, and Jón Steinsson. 2017. "Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence." American Economic Journal: Macroeconomics, 9 (1): 1-39. DOI: 10.1257/mac.20150250
- E21 Macroeconomics: Consumption; Saving; Wealth
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G12 Asset Pricing; Trading volume; Bond Interest Rates
- G35 Payout Policy