Consumption and expected asset returns without assumptions about unobservables

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Title: Consumption and expected asset returns without assumptions about unobservables
Authors: Whelan, Karl
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Date: May-2006
Abstract: If asset returns are predictable, then rational expectations and the arithmetic of budget constraints together imply that these predictable changes in returns should affect current consumption. This paper presents a new framework linking consumption, income, and observable assets to expectations of future asset returns. Relative to previous work on this topic, the framework proposed in this paper has a number of advantages including not relying on untestable assumptions concerning unobservable variables and not requiring estimation of unknown parameters to arrive at a forecasting variable.
Type of material: Technical Report
Publisher: Central Bank of Ireland
Series/Report no.: Central Bank of Ireland Research Technical Paper; 4/RT/06
Copyright (published version): 2006 Copyright Central Bank of Ireland
Subject LCSH: Consumption (Economics)
Assets (Accounting)
Economic forecasting
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Language: en
Status of Item: Not peer reviewed
Appears in Collections:Economics Research Collection

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