Thomas Tallarini

Thomas Tallarini

Assistant Vice President and Policy Advisor

Thomas.Tallarini@mpls.frb.org
CV

Interests:
Macroeconomics
Monetary policy
Consumption

Tom Tallarini joined the Federal Reserve Bank of Minneapolis in May 2012. Previously, he was an Economist at the Federal Reserve Board of Governors, which he joined in 2004. Prior to his work at the Board of Governors, Tom was an Assistant Professor at Carnegie Mellon University, a visiting Assistant Professor of Finance at the University of Pennsylvania, and an Adjunct Associate Professor of Economics at The Johns Hopkins University. Tom holds a BA degree in mathematics and economics from the University of Pennsylvania, and a PhD in economics from the University of Chicago.

External Habit and the Cyclicality of Expected Stock Returns

We estimate an equilibrium asset pricing model in which agents’ preferences have an unobserved external habit using the efficient method of moments (EMM). Given the estimated structural parameters, we examine the cyclical behavior of expected stock returns in the model. We find that the estimated structural parameters imply countercyclical expected stock returns as documented in existing empirical studies. The model, however, is still rejected at the 1% level. Detailed examination of the moment conditions in our estimation indicates that the model performs reasonably well in matching the mean of returns, but it fails to capture the higher‐order moments.

Risk-Sensitive Real Business Cycles

This paper considers the business cycle, asset pricing, and welfare effects of increased risk aversion, while holding intertemporal substitution preferences constant. I show that increasing risk aversion does not significantly affect the relative variabilities and co-movements of aggregate quantity variables. At the same time, it dramatically improves the model’s asset market predictions. The welfare costs of business cycles increase when preference parameters are chosen to match financial data.

Robust Permanent Income and Pricing

External Habit and the Cyclicality of Expected Stock Returns

We estimate an equilibrium asset pricing model in which agents’ preferences have an unobserved external habit using the efficient method of moments (EMM). Given the estimated structural parameters we examine the cyclical behavior of expected stock returns in the model. We find that the estimated structural parameters imply countercyclical expected stock returns as documented in existing empirical studies. The model, however, is still rejected at the one percent level. Detailed examination of the moment conditions in our estimation indicates that the model performs reasonably well in matching the mean of returns, but it fails to capture the higher order moments.

Whose Habit is it Anyway?

Robust Permanent Income and Pricing

Risk-Sensitive Real Business Cycles

This paper considers the business cycle, asset pricing, and welfare effects of increased risk aversion, while holding intertemporal substitution preferences constant. I show that increasing risk aversion does not significantly affect the relative variabilities and co-movements of aggregate quantity variables. At the same time, it dramatically improves the model’s asset market predictions. The welfare costs of business cycles increase when preference parameters are chosen to match financial data.