Sujoy Mukerji, Professor of Economics at the University of Oxford, presents on the underlying research of his recent paper, "Ambiguity and the Historical Equity Premium." This paper assesses the quantitative impact of ambiguity on the historically observed financial asset returns and prices. The single agent, in a dynamic exchange economy, treats uncertainty about the conditional mean of the probability distribution on consumption and dividends in the next period as ambiguous, an ambiguity that is endogenously dynamic, e.g., increasing during recessions. Mukerji and his coauthors calibrate ambiguity aversion to match only the first moment of the risk-free rate in data and, importantly, condition the uncertainty of each period on the observed history of (U.S.) macroeconomic growth outcomes. They show that the model implied time series of asset returns match observed return dynamics very substantially. This lecture is a part of the Workshop on Ambiguity and Robustness in Macroeconomics a
