Survey_BY_2004

Abstract

To derive asset market implications from the model described in (8), we calibrate the odel at the monthly frequency, such that its time-aggregated annual growth rates of consumption and dividends match salient features of observed annual data, and at the same time allow the model to reproduce many observed asset pricing features. Following Campbell and Cochrane (1999), Kandel and Stambaugh (1991), and many others, we assume that the decision interval of the agent is monthly but the targeted data to match are annual. Our choices of the time series and preference parameters are designed to simultaneously match observed growth rate data and asset market data. In order to isolate the economic effects of persistent expected growth rates from those of fluctuating economic uncertainty, we report our results first for Case I, where fluctuating economic uncertainty has been shut off (?w is set to zero), and then consider the model specification where both channels are operational.