We consider a model in which the correlation between shocks to consumption and to expected future consumption growth is nonzero and varies over time. We validate this assumption empirically using the model’s implication that time variation in consumption growth persistence (CGP) drives the correlation between stock and bond returns. Our model implies that the stock–bond correlation is also related to the predictive relation between bond yields and future stock returns. Finally, we provide suggestive evidence that asset price fluctuations are the primary driver of changes in CGP.

In a macroeconomic model with drifting long-run inflation expectations, the anchoring of inflation expectations manifests in two testable predictions. First, expectations about inflation far in the future should no longer respond to news about current inflation. Second, better anchored inflation expectations weaken the relationship between unemployment and inflation, flattening the reduced-form Phillips curve. We evaluate both predictions and find that the Federal Reserve’s communication of a numerical inflation objective, first through its Summary of Economic Projections and later through the announcement of a 2% target in 2012, better anchored inflation expectations. Moreover, inflation expectations in the United States have remained anchored amid the volatility of the COVID-19 pandemic. In contrast, similar analysis reveals no evidence of anchoring in Japan despite the adoption of a numerical inflation target.

The H-1B Visa Reform Act of 2004 dictates an annual allocation of 85,000 visas with 20,000 reserved for advanced-degree applicants. We represent the main requirements of this legislation as formal axioms and characterize visa allocation rules consistent with the axioms. Despite the precise number reserved, we show that the range of implementations satisfying these axioms can change the allocation of advanced-degree visas by as much as 14,000 in an average year. Of all rules satisfying these axioms, the 2019 rule imposed by executive order is most favorable to advanced-degree holders. However, two earlier modifications resulted in larger changes, possibly unintentionally.

We study debt and equity valuation when investors have private information and may exhibit differences of opinion. Our model generates several predictions that are consistent with empirical evidence but difficult to reconcile with traditional models. Belief dispersion relates to expected equity and debt returns in opposite directions. Similarly, expected debt (equity) returns typically increase (decrease) with default risk, though these relationships reverse for firms close to bankruptcy. Firms’ capital structures affect their valuations even without classical capital structure frictions (e.g., tax shields, distress costs) – when liquidity is higher in the equity than in the debt market, leverage can raise firm value.

We estimate a model of savings for retired couples and singles who face longevity and medical expense risks and in which couples can leave bequests both when the first spouse dies and when the last spouse dies. We show that saving motives vary by marital status, permanent income, and age. We find that most households save more for medical expenses than for bequests but that richer households and couples, who hold most of the wealth, save more for bequests. As a result, bequest motives are a key determinant of aggregate retirement wealth.

The growing popularity of home-sharing platforms such as Airbnb, partly fueled by hosts’ ability to evade local taxes and regulations, has been shown to elevate housing costs by reallocating long-term housing units to the short-term rental market. This study assesses whether enhanced tax enforcement can mitigate this trend. We analyze staggered tax collection agreements between Airbnb and Florida counties, wherein Airbnb collects taxes from the hosts directly. Using a difference-in-differences methodology, we find these agreements significantly slow the growth of housing costs, highlighting the importance of tax policy in addressing the sharing economy’s influence on housing affordability.