This is also something I have yet to study in depth, but the Fed model makes a lot of sense (specifically the capital structure substitution version). Under that model, companies generally use stock issues/buybacks paired with bond buybacks/issues to adjust how much of their funding is from stocks vs bonds, in order to maximize expected earnings per share. That creates a transmission mechanism between bonds and stocks, and is the main thing I’d think about for the sorts of stuff you’re talking about.
More generally, I’m on board with Cochrane’s money as stock theory, although I think he doesn’t implement it quite right—the assets backing dollar value on a day-to-day basis are the SOMA portfolio, not the whole government’s assets and cash flows.
This is also something I have yet to study in depth, but the Fed model makes a lot of sense (specifically the capital structure substitution version). Under that model, companies generally use stock issues/buybacks paired with bond buybacks/issues to adjust how much of their funding is from stocks vs bonds, in order to maximize expected earnings per share. That creates a transmission mechanism between bonds and stocks, and is the main thing I’d think about for the sorts of stuff you’re talking about.
More generally, I’m on board with Cochrane’s money as stock theory, although I think he doesn’t implement it quite right—the assets backing dollar value on a day-to-day basis are the SOMA portfolio, not the whole government’s assets and cash flows.