Date of Award
Doctor of Philosophy
This study examines the ability of dynamic, stochastic equilibrium models of consumer behavior to simultaneously mimic the salient features of U.S. consumption and asset return data.;Part one of the investigation focuses on the interaction between consumption choices for durable and non-durable goods, the real interest rate, and the rate of return on equity. A dynamic, stochastic, two-good general equilibrium model of consumer behaviour is constructed, and equity and a risk-free asset are priced in this economy. A discrete state space version of the model is then calibrated to U.S. data and solved numerically. Examination of the model's statistical properties are used to investigate the consistency of intertemporal optimization with the time series behaviour of the components of U.S. consumption, and to explore the interaction between consumption choices and real interest rates in general equilibrium. The model is also used to examine the extent to which risk premiums may be biased downward by the omission of durable goods in the standard single-good version of the consumption-based asset pricing model, and to investigate the potential for a low probability event to rationalize observed asset return data. The principal finding is that with moderate risk aversion the artificial economy successfully mimics the salient features of U.S. consumption data, but fails to adequately replicate the behaviour of asset return data.;Part two of this study shifts the attention to the market for forward foreign exchange. The principal question to be addressed in the context of the foreign exchange market is: To what extent can consumption risks account for the bias of the forward rate as a predictor of the future spot? To address this question a single-good, two-country version of the consumption-based asset pricing model is described. A parametric version of this model is then solved and calibrated to U.S. data. The principal finding is that with some flexibility in parameter choices, time-varying risk premiums in the model succeed in producing noticeable departures from unbiasedness, but these departures are not as pronounced as in the data.
Macklem, Richard Tiffany, "Consumption And Asset Returns In Artificial Economies" (1989). Digitized Theses. 1820.