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This paper identifies a monetary policy channel through the risk pricing of bank debt in the market for jumbo certificates of deposit (jumbo CDs). Adverse policy shocks increase debt holder perceptions of bank default, increasing the risk premia for some banks, thereby decreasing their external funding of loans. The results show that contractionary policy increases the sensitivity of jumbo-CD spreads to leverage and asset risk for small banks, and to leverage for large banks. The results also show a distributional and aggregate effect on banking system jumbo CDs and total loans, producing a risk-pricing (or market discipline) channel. This channel has implications for monetary and regulatory policies, and financial stability.

We present a general equilibrium model in which behaviorally motivated shifts in expectations play an important role in determining asset prices. In particular, fluctuations in investors' confidence about expected growth lead to variation in risk premia and asset price jumps. We directly measure confidence from the cross-section of forecasts from the Survey of Professional Forecasters. We show that there are frequent large moves in the confidence measure in the data. Moreover, in the data, these large moves are contemporaneously highly correlated with large moves in asset returns, highlighting the importance of confidence risk for asset prices. Exploiting the fluctuations in confidence risks, we show that the model can capture short and long horizon predictability by price to dividend ratio. Further, large moves in the confidence measure lead to large declines (negative jumps) in asset prices, though there are no large moves in consumption.

We propose a general equilibrium model that is able to simultaneously explain: 1. the volatility of exchange rate and stochastic discount factors, 2. the volatility of of net exports, and 3. the amount of cross-country correlation and persistence of consumption growth rates. We conduct our analysis for the case in which consumption is a Cobb-Douglas aggregation of domestic and foreign goods, both of which are tradable. Furthermore, we let the dynamics of the growth rate of the endowments of the two countries be characterized by the presence of two slowly moving predictive factors. These components, denoted as long run risks, alter the intertemporal distribution of income risk by producing slow swings in the long run growth of the endowments. With this setup, closing international financial markets could result in welfare losses as large as ten percent of lifetime consumption. The intuition behind our results is that financial integration leads international investors to benefit from increased risk sharing opportunities at different frequencies.

We propose a theoretically motivated procedure for measuring heterogeneity in firms' growth and document its empirical properties. Our model predicts that the sensitivity of firm stock returns to investment specific productivity shocks is greater for firms that derive a relatively large fraction of their market value from growth opportunities. We measure the unobservable asset composition (growth opportunities relative to assets in place) through observed differences in stock price sensitivity to z-shocks. We find that the IMC betas are able to identify heterogeneity in firms' investment responses to z-shock.. The firms not only invest more on average, but their investment increases more in response to a positive z-shock.

In this paper, we introduce a flexible framework to model heterogeneous beliefs in the economy, which we refer to as affine disagreement about fundamentals. Our affine heterogeneous beliefs framework allows further for stochastic disagreement among agents about growth rates, volatility dynamics, as well as the likelihood of jumps and the distribution of jump sizes. The flexibility of this tractable framework allows us to study various types of disagreements and their impacts on asset prices. One example we consider is when agents disagree about the frequency of disasters as well as the distribution of consumption losses in a given disaster. The model generates endogenous time variation in the equity premium, linking it to wealth distribution among agents with different beliefs.