February 7, 2024
Hoover Institution | Stanford University

Andrew Atkeson, the Stanley M. Zimmerman Professor of Economics and Finance at the University of California, Los Angeles, discussed “Reconciling Macroeconomics and Finance from the US Corporate Sector, 1929–2022,” a paper with Jonathan Heathcote and Fabrizio Perri (Federal Reserve Bank of Minneapolis).

PARTICIPANTS
Andrew Atkeson, John Taylor, Annelise Anderson, Steven Blitz, Luigi Bocola, Michael Boskin, John Cochrane, Adam Copeland, Steve Davis, Sebastian Di Tella, Sami Diaf, Darrell Duffie, Christopher Erceg, David Fedor, Andrew Filardo, Alessandra Fogli, Bob Hall, Jonathan Heathecote, Laurie Hodrick, Robert Hodrick, Erik Hurst, Ken Judd, Patrick Kehoe, Evan Koenig, Don Koch, Evan Koenig, Roman Kräussl, Anne Krueger, Marianna Kudlyak, Jeff Lacker, David Laidler, Ellen McGrattan, Ilian Mihov, David Neumark, Radek Paluszynski, Elena Pastorino, Fabrizio Perri, Alvin Rabushka, Valerie Ramey, Flavio Rovida, Amit Seru, Jack Tatom, Yevgeniy Teryoshin, Luigi Zingales

ISSUES DISCUSSED
Andrew Atkeson, the Stanley M. Zimmerman Professor of Economics and Finance at the University of California, Los Angeles, discussed “Reconciling Macroeconomics and Finance from the US Corporate Sector, 1929–2022,” a paper with Jonathan Heathcote and Fabrizio Perri (Federal Reserve Bank of Minneapolis).

John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution, was the moderator.

PAPER SUMMARY
The Integrated Macroeconomic Accounts of the United States offer a unified data set for the income statement, cash flows, and balance sheet of the U.S. Corporate Sector. We use these data together with a stochastic growth model with factorless income to revisit the question of the extent to which fluctuations in aggregate cash flows to owners of firms drive fluctuations in the market value of U.S. Corporations. We find in these data that payout-price ratios do forecast growth of future cash flows and that the volatility of future cash flows is more than enough to account for observed volatility of corporate valuations even in the absence of fluctuations in expected excess returns on equity. Our data are consistent with the view that the failure to find cash flow predictability in data on publicly traded firms is due to dividend smoothing on the part of those firms and long run changes in payout policies by public firms. Our model measurement exercise is consistent with the view that relatively small fluctuations in investors’ expectations of the share of factorless income in the long run have driven a large part of stock market fluctuations, particularly since WWII. Our model measurement exercise does uncover puzzling long-run behavior of the excess return on investment in tangible capital over the past 100 years. That return to capital was quite high from World War II until the early 1980’s but has been close to the riskless interest rate since then.

To read the paper, click the following link
https://www.hoover.org/sites/default/...

To read the slides, click here
https://www.hoover.org/sites/default/...