9409354 Sargent This research agenda addresses important unresolved problems in empirical macroeconomics: aggregate consumption, asset prices, and the term structure of returns, as well as the price level impacts of various combinations of monetary and fiscal policy. In addition, it includes theoretical work analyzing regime switches in a fully dynamic model and how theoretical learning models should be integrated into empirical research. More specifically, this project applies and extends dynamic econometric theories of consumption and investment to include multiple durable consumption goods, habits, heterogeneity across household "technologies," a parametric version of risk- sensitivity, and economies with long but finitely lived overlapping generations of people. The project studies aggregation across households with habits and tastes for multiple durable goods both in economies with complete and incomplete markets. A recurring theme is how permanent income types of theory continue to surface in a variety of settings, and how they can be used econometrically. A link between permanent income theories and econometric "dynamic index" models will be exploited for estimation and forecasting. In an overlapping generations application of the models, the project estimates some of the costs and benefits that would be associated with a transition from an unfunded to a fully funded social security system. The project also examines a class of monetary models that promise to broaden the range of evidence than can be brought to bear on distinguished the quantity theory of money from one of its main competitors, the "real bills" theory.
