This paper examines the extent to which swings in stock prices can be related to variations in the discounted value of expected future dividends when investors face uncertainty about their future behaviour. I develop an econometric model that accounts for the instability of U.S. dividend growth and discount rates during the past 120 years. Estimates of the model reveal that changing forecasts of future dividend growth account for more than 90% of the predictable variations in dividend-prices. The estimates also imply that instability in the dividend and discount rate processes contribute significantly to the predictability of long-horizon stock returns.

This article presents a monetary growth model where spatial separation and limited communication create a role for banks. Monetary policy interacts with the financial system's liquidity provision to affect the existence, multiplicity, and dynamical properties of equilibria. Moderate levels of risk aversion and tight monetary policy can lead to multiple steady states. Dynamical equilibria can be indeterminate, with oscillatory paths. Thus financial market frictions are a source of indeterminacies and endogenous volatility. Under plausible conditions, tight monetary policy raises the nominal interest rate and inflation rate and reduces long run output. Thus, a central bank's liquidity provision can promote growth.