The Equity Premium and the Concentration of Aggregate Shocks

This paper examines an economy in which aggregate shocks are not dispersed equally throughout the population. Instead, while these shocks affect all individuals ex ante, they are concentrated among a few ex post.The equity premium in general depends on the concentration of these aggregate shocks; it follows that one cannot estimate the degree of risk aversion from aggregate data alone. These findings suggest that the empirical usefulness of aggregation theorems for capital asset pricing models is limited.

Imperfect Competition and the Keynesian Cross

This paper presents a simple general equilibrium model in which the only non-Walrasian feature is imperfect competition in the goods market. The model is shown to exhibit various Keynesian characteristics. In particular, as competition in the goods market becomes less perfect, the fiscal policy multipliers approach the values implied by the textbook Keynesian cross.

A Quick Refresher Course in Macroeconomics

This paper presents a non-technical discussion of some of the important developments in macroeconomics over the past twenty years. It considers three broad categories of research. First, it discusses how the notion of rational expectations has affected economists' views on the role of economic policy, the debate over rules versus discretion, and empirical work in macroeconomics Second, it discusses various new classical approaches to the business cycle, including imperfect information theories, real business cycle theories, and sectoral shift theories. Third, it discusses various new Keynesian approaches to the business cycle, includes theories based on general disequilibrium, labor contracting, and menu costs.

What Do Budget Deficits Do?

This paper discusses the effects of budget deficits on the economy in four steps. First, it reviews standard theory about how budget deficits influence saving, investment, the trade balance, interest rates, exchange rates, and long-term growth. Second, it offers a rough estimate of the magnitude of some of the effects. Third, it discusses how budget deficits affect economic welfare. Finally, it considers the possibility that continuing budget deficits in a country could lead to a 'hard landing' in which the demand for the country's assets suddenly collapses.