Research
Financial Markets and the Real Economy
Volume 18 of the International Library of Critical Writings in Financial Economics, John H. Cochrane Ed., London: Edward Elgar. March 2006. Edited volume of collected articles with an introduction surveying the field.
Volume 18 of the International Library of Critical Writings in Financial Economics, John H. Cochrane Ed., London: Edward Elgar. March 2006. Edited volume of collected articles with an introduction surveying the field.
Time series for macroeconomics and Finance
Lecture notes for PhD time series course. This revision finally includes the figures!
Lecture notes for PhD time series course. This revision finally includes the figures!
Writing tips for PhD students
May 2005. Some tips on how to write academic articles. Do as I say, not as I do. Chinese Translation, 2013. (Original source of chinese translation. Thanks to Shihe Fu)
May 2005. Some tips on how to write academic articles. Do as I say, not as I do. Chinese Translation, 2013. (Original source of chinese translation. Thanks to Shihe Fu)
Money as Stock
Journal of Monetary Economics 52:3, (2005) 501-528. Revision of NBER Working Paper 7498 Feb. 2000. The fiscal theory of the price level made simple. The `government budget constraint' is not a constraint. I reopen the security market at the end of the day in a cash in advance model, and show that the price level is still determinate. I also resolve the criticism that the fiscal theory mistreats the "government budget constraint."
Journal of Monetary Economics 52:3, (2005) 501-528. Revision of NBER Working Paper 7498 Feb. 2000. The fiscal theory of the price level made simple. The `government budget constraint' is not a constraint. I reopen the security market at the end of the day in a cash in advance model, and show that the price level is still determinate. I also resolve the criticism that the fiscal theory mistreats the "government budget constraint."
Bond Risk Premia
With Monika Piazzesi. American Economic Review 95:1, 138-160 (2005). We forecast one year bond excess returns with a 44% R2! More importantly, a single factor, a single linear combination of yields or forward rates, forecasts one-year returns of all maturity bonds. Read here the Appendix with lots of extra analysis. (Updated Sept 2006 to fix typos in forward rate formulas.) The NBER working paper has lots of cool stuff, including links to macro and the covariance with level result, that got trimmed from the published paper. Data and programs. Look at the pretty plot of how our forecasts work out of sample since we wrote the paper (Until the 2008 financial crisis, in which the Fama-Bliss procedure breaks down.) Read the Response to Ken Singleton regarding his criticism of our results in a paper with Dai and Yang, and then published in his book Empirical Dynamic Asset Pricing (Princeton, 2006). Overheads, useful if you want to teach the paper A summary with color graphs, and treatment of the period since the 2008 financial crisis, in lecture note form. Start on p 567.
With Monika Piazzesi. American Economic Review 95:1, 138-160 (2005). We forecast one year bond excess returns with a 44% R2! More importantly, a single factor, a single linear combination of yields or forward rates, forecasts one-year returns of all maturity bonds. Read here the Appendix with lots of extra analysis. (Updated Sept 2006 to fix typos in forward rate formulas.) The NBER working paper has lots of cool stuff, including links to macro and the covariance with level result, that got trimmed from the published paper. Data and programs. Look at the pretty plot of how our forecasts work out of sample since we wrote the paper (Until the 2008 financial crisis, in which the Fama-Bliss procedure breaks down.) Read the Response to Ken Singleton regarding his criticism of our results in a paper with Dai and Yang, and then published in his book Empirical Dynamic Asset Pricing (Princeton, 2006). Overheads, useful if you want to teach the paper A summary with color graphs, and treatment of the period since the 2008 financial crisis, in lecture note form. Start on p 567.
Asset Pricing
Revised Edition. link gives you a sample chapter. Click here to go to the Princeton University press website where you can order the book. (It is sometimes cheaper at Amazon.com or Barnes and Noble.com. In Chicago, it’s available at the seminary COOP bookstore.)
Additional materials for Asset Pricing, lecture notes, new chapters, and the online class are now moved to their own page here, or via the Asset Pricing link at left.
Revised Edition. link gives you a sample chapter. Click here to go to the Princeton University press website where you can order the book. (It is sometimes cheaper at Amazon.com or Barnes and Noble.com. In Chicago, it’s available at the seminary COOP bookstore.)
Additional materials for Asset Pricing, lecture notes, new chapters, and the online class are now moved to their own page here, or via the Asset Pricing link at left.
Investments notes
Notes for MBA investments classes. Summary of background (statistics, regression, time series, matrices, maximization) and a concise treatment of some of the standard topics (bond notation and expectations hypothesis, bond pricing)
Notes for MBA investments classes. Summary of background (statistics, regression, time series, matrices, maximization) and a concise treatment of some of the standard topics (bond notation and expectations hypothesis, bond pricing)
Liquidity, Trading and Asset Prices
NBER reporter, Jan 2005. A review of these issues in asset pricing.
NBER reporter, Jan 2005. A review of these issues in asset pricing.
Time series for macroeconomics and Finance
Jan 2005 Lecture notes for PhD time series course. This revision finally includes the figures!
Jan 2005 Lecture notes for PhD time series course. This revision finally includes the figures!
Comments on “Anomalies”
Anomalies by Lu Zhang, 2004 presented at the November 2004 AP meeting. A great paper, but a first-order condition is not an "explanation."
Anomalies by Lu Zhang, 2004 presented at the November 2004 AP meeting. A great paper, but a first-order condition is not an "explanation."
The Risk and Return of Venture Capital
(published version) Journal of Financial Economics, Volume 75, Issue 1, January 2005, 3-52. Last Manuscript Estimates the mean return, standard deviation, alpha and beta of venture capital investments, correcting for selection bias that we only see returns for successful projects. Even if you don’t like venture capital, the selection bias correction is interesting. Original December 2000. Appendix containing data and program descriptions plus extra algebra. See above data and programs link for data and programs.
(published version) Journal of Financial Economics, Volume 75, Issue 1, January 2005, 3-52. Last Manuscript Estimates the mean return, standard deviation, alpha and beta of venture capital investments, correcting for selection bias that we only see returns for successful projects. Even if you don’t like venture capital, the selection bias correction is interesting. Original December 2000. Appendix containing data and program descriptions plus extra algebra. See above data and programs link for data and programs.
A new measure of Monetary Policy
By Christina and David Romer, presented at the July 2004 EFG meeting.
By Christina and David Romer, presented at the July 2004 EFG meeting.
The fiscal foundations of monetary regimes
(paper, and powerpoint presentation) January 2003. The choice of monetary regime – interest rate rule, exchange rate peg, currency board, dollarization, etc. depends on fiscal constraints, especially for developing countries. Talk given at the 2003 NBER/NCAER Neemrana conference, India.
(paper, and powerpoint presentation) January 2003. The choice of monetary regime – interest rate rule, exchange rate peg, currency board, dollarization, etc. depends on fiscal constraints, especially for developing countries. Talk given at the 2003 NBER/NCAER Neemrana conference, India.
Stocks as Money: Convenience Yield and the Tech-Stock Bubble
May 2002. Published in William C. Hunter, George G. Kaufman and Michael Pomerleano, Eds., Asset Price Bubbles Cambridge: MIT Press 2003. The “arbitrage opportunity” in Palm vs. 3Com stock might be like the arbitrage opportunity between money and treasury bills. I document many similar features, including high turnover in the “overpriced” security. Presented at the Chicago Fed Conference on asset price bubbles, April 2002.
May 2002. Published in William C. Hunter, George G. Kaufman and Michael Pomerleano, Eds., Asset Price Bubbles Cambridge: MIT Press 2003. The “arbitrage opportunity” in Palm vs. 3Com stock might be like the arbitrage opportunity between money and treasury bills. I document many similar features, including high turnover in the “overpriced” security. Presented at the Chicago Fed Conference on asset price bubbles, April 2002.
The Fed and Interest Rates – a High Frequency Identification
American Economic Review 92 (2002), 90-95. With Monika Piazzesi (previously NBER WP 8839) . We measure monetary policy shocks by how they surprise daily bond markets. There's a beautiful Taylor rule in interest rate forecasts.
American Economic Review 92 (2002), 90-95. With Monika Piazzesi (previously NBER WP 8839) . We measure monetary policy shocks by how they surprise daily bond markets. There's a beautiful Taylor rule in interest rate forecasts.
Macroeconomics in Russia
In Economic Transition in Eastern Europe and Russia: Realities of Reform, Edward Lazear Ed., Hoover Institution Press, 1995. Imagine for a moment that the Federal Reserve imposed the following policies in the United States: Every company must pay for all its inputs before they are shipped, and taxes must also be prepaid. But there is no trade credit, and banks do not make working capital loans to purchase inputs. Checks take 90 days to clear… Chaos would result… This is roughly what happened in Russia during the summer of 1992. The story… points to the importance of macroeconomic policies, and the unintended macroeconomic effects of policy, in understanding developments in Russia and the Former Soviet Union. It also suggests that many macroeconomic problems are not inevitable consequences of the transition to a market economy, but rather that they are avoidable unintended effects of partial liberalizations.
In Economic Transition in Eastern Europe and Russia: Realities of Reform, Edward Lazear Ed., Hoover Institution Press, 1995. Imagine for a moment that the Federal Reserve imposed the following policies in the United States: Every company must pay for all its inputs before they are shipped, and taxes must also be prepaid. But there is no trade credit, and banks do not make working capital loans to purchase inputs. Checks take 90 days to clear… Chaos would result… This is roughly what happened in Russia during the summer of 1992. The story… points to the importance of macroeconomic policies, and the unintended macroeconomic effects of policy, in understanding developments in Russia and the Former Soviet Union. It also suggests that many macroeconomic problems are not inevitable consequences of the transition to a market economy, but rather that they are avoidable unintended effects of partial liberalizations.
Review of Famous First Bubbles: The Fundamentals of Early Manias
Journal of Political Economy 109, (October 2001),1150-1154. Review of the very nice book by Peter Garber, looking at the facts behind the tulip “bubble” and related myths. It turns out they are mythical. I had a lot of fun with this one.
Journal of Political Economy 109, (October 2001),1150-1154. Review of the very nice book by Peter Garber, looking at the facts behind the tulip “bubble” and related myths. It turns out they are mythical. I had a lot of fun with this one.
Solving real business cycle models by solving systems of first order conditions
1993 Set of old lecture notes. Still, underground copies are circulating, so you can get a fresh one here.
1993 Set of old lecture notes. Still, underground copies are circulating, so you can get a fresh one here.
Long term debt and optimal policy in the fiscal theory of the price level
Econometrica 69, 69-116 (2001). The fiscal theory with long term debt, and how to match the fiscal theory with business-cycle variation in debt and inflation. We typically write fiscal theory models with one-period debt, but the maturity structure turns out to matter a lot. For example, if the government pays off a perpetuity, then the price level is determined by the coupon coming due each year and that year’s taxes, with no present value of future taxes. I also resolve the empirical puzzle that inflation and deficits seem not to commove. That’s exactly what we expect of a government that’s trying to smooth inflation in the face of fiscal shocks.
Econometrica 69, 69-116 (2001). The fiscal theory with long term debt, and how to match the fiscal theory with business-cycle variation in debt and inflation. We typically write fiscal theory models with one-period debt, but the maturity structure turns out to matter a lot. For example, if the government pays off a perpetuity, then the price level is determined by the coupon coming due each year and that year’s taxes, with no present value of future taxes. I also resolve the empirical puzzle that inflation and deficits seem not to commove. That’s exactly what we expect of a government that’s trying to smooth inflation in the face of fiscal shocks.
Explaining the Poor Performance of Consumption-Based Asset Pricing Models
(With John Y. Campbell). Journal of Finance 55(6) (December 2000) 2863-2878. The CAPM outperforms the consumption-based model in artificial data from the habit persistence model used in "By force of Habit.."
(With John Y. Campbell). Journal of Finance 55(6) (December 2000) 2863-2878. The CAPM outperforms the consumption-based model in artificial data from the habit persistence model used in "By force of Habit.."