NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence

Emi Nakamura, Dmitriy Sergeyev, Jón Steinsson

NBER Working Paper No. 18128
Issued in June 2012
NBER Program(s):   AP   EFG   IFM   ME

We provide new estimates of the importance of growth rate 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.

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This paper was revised on May 6, 2016

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Document Object Identifier (DOI): 10.3386/w18128

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