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Benchmark finance and macroeconomic models appear to deliver conflicting estimates of the natural rate and bond risk premia. This natural rate puzzle applies not only in the U.S. but across many advanced economies. We use a unified no-arbitrage macro- finance model with two trend factors to estimate the natural rate r∗ for 10 advanced economies. We cover a longer and wider sample than previous studies and draw on new sources to construct yield curves and excess returns. The two-trend model im- proves the explanatory power of yield regressions and return forecasts. Most variation in yields is due to the macro trends r∗ and π∗, and not bond risk premia. Global compo- nents of unexpected bond returns are influential, while the local components of natural rates are large. Our r∗ estimates covary with growth and demographic variables in a manner consistent with theory and previous findings.

We show quantitatively that status-seeking preferences can help to jointly explain three empirical facts; Large portfolio exposure to idiosyncratic risk among the wealthy, increasing savings rates in wealth, and the equity premium. Building on Huetsch (2022), we further extend Indepedent General Polynomial Chaos Expansion can be extended to solve dynamic models in the context of non-trivial portfolio choices.