Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence
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.
We would like to thank Mariana Garcia and Channing Verbeck for excellent research assistance. We would like to thank Andrew Ang, Ravi Bansal, Geert Bekaert, Jaroslav Borovicka, John Campbell, John Cochrane, Tim Cogley, Lars Hansen, John Heaton, Ralph Koijen, Lars Lochstoer, Martin Lettau, Sydney Ludvigson, Stavros Panageas, Monika Piazzesi, Bernard Salanie, Martin Schneider, Adrien Verdelhan and seminar participants at various institutions for valuable comments and discussions. We thank the Columbia University Center for International Business Education and Research for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Emi Nakamura & Dmitriy Sergeyev & Jón Steinsson, 2017. "Growth-Rate and Uncertainty Shocks in Consumption: Cross-Country Evidence," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(1), pages 1-39, January. citation courtesy of