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This paper answers fundamental questions that have preoccupied modern economic thought since the 18th century.

What is the aggregate real rate of return in the economy?

I solve for the time series of stochastic shocks and endogenous forecast rule weights that allow the model to exactly replicate the observed time paths of the U. This paper explores the contribution of each of these three developments in explaining financial crises using long-run historical data for 17 advanced economies.

For the unemployed, the duration since last employment is a better predictor of future employment than the self-reported duration of unemployment is, as the two duration measures often disagree.

The disagreement is not caused by classification error but rather arises because self-reported durations reflect individuals’ in short-term jobs either temporarily suspending their search or continuing search while working.

The annual data on total returns for equity, housing, bonds, and bills cover 16 advanced economies from 1870 to 2015, and our new evidence reveals many new insights and puzzles.

This paper develops a New Keynesian model with a time-varying natural rate of interest (r-star) and a zero lower bound (ZLB) on the nominal interest rate.

During such episodes, intermediaries expand their lending and leverage, thereby building up financial fragility.

Crises are generally initiated by a moderate adverse shock that puts pressure on intermediaries’ balance sheets, triggering a creditor run, a contraction in new lending, and ultimately a deep and persistent recession.

Which particular assets have the highest long-run returns?

We answer these questions on the basis of a new and comprehensive dataset for all major asset classes, including—for the first time—total returns to the largest, but oft ignored, component of household wealth, housing.

In contrast, we consider the advantages of a one-step approach that directly analyzes the universe of bond prices.

To illustrate the feasibility and desirability of the onestep approach, we compare arbitrage-free dynamic term structure models estimated using both approaches.

Financial crises are born out of prolonged credit booms and depressed productivity.