Winner of the prestigious Paul A. Samuelson Award for scholarly writing on lifelong financial security, John Cochrane's Asset Pricing now appears in a revised edition that unifies and brings the science of asset pricing up to date for advanced students and professionals. Cochrane traces the pricing of all assets back to a single idea—price equals expected discounted payoff—that captures the macro-economic risks underlying each security's value. By using a single, stochastic discount factor rather than a separate set of tricks for each asset class, Cochrane builds a unified account of modern asset pricing. He presents applications to stocks, bonds, and options. Each model—consumption based, CAPM, multifactor, term structure, and option pricing—is derived as a different specification of the discounted factor. The discount factor framework also leads to a state-space geometry for mean-variance frontiers and asset pricing models. It puts payoffs in different states of nature on the axes rather than mean and variance of return, leading to a new and conveniently linear geometrical representation of asset pricing ideas. Cochrane approaches empirical work with the Generalized Method of Moments, which studies sample average prices and discounted payoffs to determine whether price does equal expected discounted payoff. He translates between the discount factor, GMM, and state-space language and the beta, mean-variance, and regression language common in empirical work and earlier theory. The book also includes a review of recent empirical work on return predictability, value and other puzzles in the cross section, and equity premium puzzles and their resolution. Written to be a summary for academics and professionals as well as a textbook, this book condenses and advances recent scholarship in financial economics.

This is the seventh in a series of annuals from the National Bureau of Economic Research that are designed to stimulate research on problems in applied economics, to bring frontier theoretical developments to a wider audience, and to accelerate the interaction between analytical and empirical research in macroeconomics. Contents What Shall We Do Today? Goals and Signposts in the Operation of Monetary Policy, Ben S. Bernanke and Frederic S. Mishkin - A Tale of Two Cities: Factor Accumulation and Technical Change in Hong Kong and Singapore, Alwyn Young - International Trade and the Wage Structure, Steven J. Davis - Imperfect Information and Macroeconomic Analysis, Joseph E. Stiglitz and Bruce Greenwald - Asset Pricing Lessons for Macroeconomics, Lars P. Hansen and John H. Cochrane - Postmortem on the Debt Crisis, Daniel Cohen

Debt, private and public, and in particular excessive debt, has been debated to be one of the root causes of economic crises. At the same time, economic crises are believed to lead to an increase of debt. This book, through a range of contributors, explores certain constituents of an economy and attempts to identify their contribution to debt (public and private), especially in times of crisis; namely, bonds, tariffs, social security and non-performing loans (NPLs). Furthermore, it captures the (implicit) impact of the demography on debt through tariffs and social security and investigates the effect of quantitative easing/purchase programs and as well as crises on debt. In addition, the (cost of the) reserve that a state may want to provision for, in order to secure its economy from defaulting within a certain time horizon, is also addressed and calculated. This calculation offers an alternative valuation, or pricing, of (excess) debt (default protection). This book aims to offer a comparative study of countries – especially those with a history of excessive debt - and intends to realize whether an economic crisis can genuinely deteriorate debt, or whether the debt unsustainability is preexisting to the crisis. It will be relevant to students and researchers interested in economic policy and growth.

An introduction to the theory and methods of empirical asset pricing, integrating classical foundations with recent developments. This book offers a comprehensive advanced introduction to asset pricing, the study of models for the prices and returns of various securities. The focus is empirical, emphasizing how the models relate to the data. The book offers a uniquely integrated treatment, combining classical foundations with more recent developments in the literature and relating some of the material to applications in investment management. It covers the theory of empirical asset pricing, the main empirical methods, and a range of applied topics. The book introduces the theory of empirical asset pricing through three main paradigms: mean variance analysis, stochastic discount factors, and beta pricing models. It describes empirical methods, beginning with the generalized method of moments (GMM) and viewing other methods as special cases of GMM; offers a comprehensive review of fund performance evaluation; and presents selected applied topics, including a substantial chapter on predictability in asset markets that covers predicting the level of returns, volatility and higher moments, and predicting cross-sectional differences in returns. Other chapters cover production-based asset pricing, long-run risk models, the Campbell-Shiller approximation, the debate on covariance versus characteristics, and the relation of volatility to the cross-section of stock returns. An extensive reference section captures the current state of the field. The book is intended for use by graduate students in finance and economics; it can also serve as a reference for professionals.

Financial Markets and the Real Economy reviews the current academic literature on the macroeconomics of finance.

Macroeconomics is in disarray. No one approach is dominant, and an increasing divide between theory and empirics is evident. This book presents both a critique of mainstream macroeconomics from a structuralist perspective and an exposition of modern structuralist approaches. The fundamental assumption of structuralism is that it is impossible to understand a macroeconomy without understanding its major institutions and distributive relationships across productive sectors and social groups. Lance Taylor focuses his critique on mainstream monetarist, new classical, new Keynesian, and growth models. He examines them from a historical perspective, tracing monetarism from its eighteenth-century roots and comparing current monetarist and new classical models with those of the post-Wicksellian, pre-Keynesian generation of macroeconomists. He contrasts the new Keynesian vision with Keynes's General Theory, and analyzes contemporary growth theories against long traditions of thought about economic development and structural change. Table of Contents: Acknowledgments Introduction 1. Social Accounts and Social Relations 1. A Simple Social Accounting Matrix 2. Implications of the Accounts 3. Disaggregating Effective Demand 4. A More Realistic SAM 5. Stock-Flow Relationships 6. A SAM and Asset Accounts for the United States 7. Further Thoughts 2. Prices and Distribution 1. Classical Macroeconomics 2. Classical Theories of Price and Distribution 3. Neoclassical Cost-Based Prices 4. Hat Calculus, Measuring Productivity Growth, and Full Employment Equilibrium 5. Mark-up Pricing in the Product Market 6. Efficiency Wages for Labor 7. New Keynesian Crosses and Methodological Reservations 8. First Looks at Inflation 3. Money, Interest, and Inflation 1. Money and Credit 2. Diverse Interest Theories 3. Interest Rate Cost-Push 4. Real Interest Rate Theory 5. The Ramsey Model 6. Dynamics on a Flying Trapeze 7. The Overlapping Generations Growth Model 8. Wicksell's Cumulative Process Inflation Model 9. More on Inflation Taxes 4. Effective Demand and Its Real and Financial Implications 1. The Commodity Market 2. Macro Adjustment via Forced Saving and Real Balance Effects 3. Real Balances, Input Substitution, and Money Wage Cuts 4. Liquidity Preference and Marginal Efficiency of Capital 5. Liquidity Preference, Fisher Arbitrage, and the Liquidity Trap 6. The System as a Whole 7. The IS/LM Model 8. Keynes and Friends on Financial Markets 9. Financial Markets and Investment 10. Consumption and Saving 11 "Disequilibrium" Macroeconomics 12. A Structuralist Synopsis 5. Short-Term Model Closure and Long-Term Growth 1. Model "Closures" in the Short Run 2. Graphical Representations and Supply-Driven Growth 3. Harrod, Robinson, and Related Stories 4. More Stable Demand-Determined Growth 6. Chicago Monetarism, New Classical Macroeconomics, and Mainstream Finance 1. Methodological Caveats 2. A Chicago Monetarist Model 3. A Cleaner Version of Monetarism 4. New Classical Spins 5. Dynamics of Government Debt 6. Ricardian Equivalence 7. The Business Cycle Conundrum 8. Cycles from the Supply Side 9. Optimal Behavior under Risk 10. Random Walk, Equity Premium, and the Modigliani-Miller Theorem 11. More on Modigliani-Miller 12. The Calculation Debate and Super-Rational Economics 7. Effective Demand and the Distributive Curve 1. Initial Observations 2. Inflation, Productivity Growth, and Distribution 3. Absorbing Productivity Growth 4. Effects of Expansionary Policy 5. Financial Extensions 6. Dynamics of the System 7. Comparative Dynamics 8. Open Economy Complications 8. Structuralist Finance and Money 1. Banking History and Institutions 2. Endogenous Finance 3. Endogenous Money via Bank Lending 4. Money Market Funds and the Level of Interest Rates 5. Business Debt and Growth in a Post-Keynesian World 6. New Keynesian Approaches to Financial Markets 9. A Genus of Cycles 1. Goodwin's Model 2. A Structuralist Goodwin Model 3. Evidence for the United States 4. A Contractionary Devaluation Cycle 5. An Inflation Expectations Cycle 6. Confidence and Multiplier 7. Minsky on Financial Cycles 8. Excess Capacity, Corporate Debt Burden, and a Cold Douche 9. Final Thoughts 10. Exchange Rate Complications 1. Accounting Conundrums 2. Determining Exchange Rates 3. Asset Prices, Expectations, and Exchange Rates 4. Commodity Arbitrage and Purchasing Power Parity 5. Portfolio Balance 6. Mundell-Fleming 7. IS/LM Comparative Statics 8. UIP and Dynamics 9. Open Economy Monetarism 10. Dornbusch 11. Other Theories of the Exchange Rate 12. A Developing Country Debt Cycle 13. Fencing in the Beast 11. Growth and Development Theories 1. New Growth Theories and Say's Law 2. Distribution and Growth 3. Models with Binding Resource or Sectoral Supply Constraints 4. Accounting for Growth 5. Other Perspectives 6. The Mainstream Policy Response 7. Where Theory Might Sensibly Go References Index Reconstructing Macroeconomics is a stunning intellectual achievement. It surveys an astonishing range of macroeconomic problems and approaches in a compact, coherent critical framework with unfailing depth, wit, and subtlety. Lance Taylor's pathbreaking work in structural macroeconomics and econometrics sets challenging standards of rigor, realism, and insight for the field. Taylor shows why the structuralist and Keynesian insistence on putting accounting consistency, income distribution, and aggregate demand at the center of macroeconomic analysis is indispensable to understanding real-world macroeconomic events in both developing and developed economies. The book is full of new results, modeling techniques, and shrewd suggestions for further research. Taylor's scrupulous and balanced appraisal of the whole range of macroeconomic schools of thought will be a source of new perspectives to macroeconomists of every persuasion. --Duncan K. Foley, New School University Lance Taylor has produced a masterful and comprehensive critical survey of existing macro models, both mainstream and structuralist, which breaks considerable new ground. The pace is brisk, the level is high, and the writing is entertaining. The author's sense of humor and literary references enliven the discussion of otherwise arcane and technical, but extremely important, issues in macro theory. This book is sure to become a standard reference that future generations of macroeconomists will refer to for decades to come. --Robert Blecker, American University While there are other books dealing with heterodox macroeconomics, this book surpasses them all in the quality of its presentation and in the careful treatment and criticism of orthodox macroeconomics including its recent contributions. The book is unique in the way it systematically covers heterodox growth theory and its relations to other aspects of heterodox macroeconomics using a common organizing framework in terms of accounting relations, and in the way it compares the theories with mainstream contributions. Another positive and novel feature of the book is that it takes a long view of the development of economic ideas, which leads to a more accurate appreciation of the real contributions by recent theoretical developments than is possible in a presentation that ignores the history of macroeconomics. --Amitava Dutt, University of Notre Dame