More from these Authors

• Article | Journal of Political Economy | August 2020

  Macroeconomic Drivers of Bond and Equity Risks

  John Y. Campbell, Carolin E. Pflueger and Luis M. Viceira

  Our new model of consumption-based habit generates time-varying risk premia on bonds and stocks from loglinear, homoskedastic macroeconomic dynamics. Consumers' first-order condition for the real risk-free bond generates an exactly loglinear consumption Euler equation, commonly assumed in New Keynesian models. We estimate that the correlation between inflation and the output gap switched from negative to positive in 2001. Higher inflation lowers real bond returns, and higher output raises stock returns, explaining why the bond-stock return correlation changed from positive to negative. In the model, risk premia amplify this change in bond-stock return comovement and are crucial for a quantitative explanation.

  Keywords: consumption-based habit formation; consumption Euler equation; time-varying risk premia; inflation dynamics; bond-stock correlation; Risk and Uncertainty; Bonds; Macroeconomics;

  Citation:

  Campbell, John Y., Carolin E. Pflueger, and Luis M. Viceira. "Macroeconomic Drivers of Bond and Equity Risks." Journal of Political Economy 128, no. 8 (August 2020): 3148–3185.  View Details

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• Case | HBS Case Collection | July 2020

  Sustainable Investing in Private Markets at TIFF

  Luis M. Viceira and Victoria Sienczewski

  Citation:

  Viceira, Luis M., and Victoria Sienczewski. "Sustainable Investing in Private Markets at TIFF." Harvard Business School Case 221-005, July 2020.  View Details

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• Working Paper | HBS Working Paper Series | 2020

  Predictable Financial Crises

  Robin Greenwood, Samuel G. Hanson, Andrei Shleifer and Jakob Ahm Sørensen

  Using historical data on post-war financial crises around the world, we show that crises are substantially predictable. The combination of rapid credit and asset price growth over the prior three years, whether in the nonfinancial business or the household sector, is associated with about a 40% probability of entering a financial crisis within the next three years. This compares with a roughly 7% probability in normal times, when neither credit nor asset price growth has been elevated. Our evidence cuts against the view that financial crises are unpredictable “bolts from the sky” and points toward the Kindleberger-Minsky view that crises are the byproduct of predictable, boom-bust credit cycles. The predictability we document favors macro-financial policies that “lean against the wind” of credit market booms.

  Keywords: Financial Crisis; Forecasting and Prediction; Mathematical Methods;

  Citation:

  Greenwood, Robin, Samuel G. Hanson, Andrei Shleifer, and Jakob Ahm Sørensen. "Predictable Financial Crises." Harvard Business School Working Paper, No. 20-130, June 2020.  View Details

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