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Macroeconomic Fluctuations and Equilibrium Discount Factors

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  • Mr. Charles Frederick Kramer

Abstract

The estimation of discount factors is a central issue in empirical finance, particularly in the literature on excess volatility. In particular, it is difficult to find empirical discount factors that are volatile enough to account for fluctuations in asset prices. This paper constructs discount factors from some macroeconomic time series commonly used in empirical models of asset prices. Data for the U.S. stock market imply some evidence that discount factors relate to macroeconomic conditions, but comparison of the estimated discount factors to Hansen-Jagannathan (1991) bounds shows that the candidate discount factors cannot account for the volatility in asset returns.

Suggested Citation

  • Mr. Charles Frederick Kramer, 1996. "Macroeconomic Fluctuations and Equilibrium Discount Factors," IMF Working Papers 1996/118, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1996/118
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    Keywords

    WP; discount factor; time series;
    All these keywords.

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