Building on the seminal work of Veronesi (2000), we investigate the relationship between the quality of information on the state of the economy and equity risk premium. In this, we use a setup where investors have Epstein-Zin preferences and the economy switches between booms and recessions at random intervals (Hamilton, 1989). Calibrating the model to fit the business cycle patterns in the US postwar data, we are able to establish two key results: First, as conjectured in the existing literature, we demonstrate that investors with high intertemporal elasticity of substitution will require lower excess returns for holding stocks if they are provided with better information on the state of the economy. Second, and even more interesting (since not predicted in the literature), we find that this will also hold for investors with a moderate elasticity of intertemporal substitution if they are moderately risk averse. * We thank Sergio Albeverio, Carlo Savino, and Pietro Veronesi for helpful comments. We also thank seminar participants at IAM, University of Bonn and at the University of St. Gallen.

This paper asks to what extent institutional features that facilitate tax evasion may keep Leviathan governments at bay. The specific feature we look at is banking secrecy abroad. The analysis draws on a 16-generation OLG model in which tax rates are determined in a repeated game between voters and a rent-seeking Leviathan government. Key insights are: (1) Effects on any generation alive when change takes place may differ substantially from steady-state effects that accrue for generations yet to be born. (2) There is considerable intergenerational diversity in these effects that is not monotonic as we move from young to old. Combined, these results suggest that the political economy of pertinent institutional change may be quite complex.

This paper proposes a novel explanation for the empirical finding that yields on riskfree bonds are increasing with their maturity (the term premium). The key ingredient in the explanation is that investors not only dislike risk, but also dislike uncertainty about the current trend growth rate of the economy. The model setup is one where investors observe consumption growth rates and use these observations to estimate the current level of a mean reverting trend growth rate. At a given point in time, uncertainty about the state is given by the variance of the estimate. Disliking uncertainty, investors bias their estimate of the current trend downwards. On average this lowers short term interest rates relative to long run interest rates. The model can account quantitatively for the observed term premium in the US data and correctly predicts the flattening of the real yield curve since the early nineties.

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This paper attempts two things: First, to modernize partisan theory by merging the idea of partisan differences in macroeconomic preferences with recent, optimizing models of aggregate supply that account for sluggish nominal adjustment. This aids in resolving some puzzles posed by the current state of partisan theory research. Second, to exploit partisan patterns for a comparison of the empirical performance of the new Keynesian Phillips curve with that of a recent challenger, the sticky-information Phillips curve. It turns out that the sticky-information Phillips curve clearly outperforms its better established rival: in accounting for econometric estimates of partisan patterns in OECD countries, and in tracking postwar experience in the US.