Abstract
The exchange economy model of Lucas yields the familiar Euler condition that discounts expected returns by marginal utility growth. Unfortunately, proxies for marginal utility growth are subject to theoretical and empirical shortcomings. This study proposes a new macroeconomic theory-derived and productivity-based marginal utility growth proxy that avoids the theoretical difficulty in utility function specification and empirical problems associated with consumption data used as the primary utility function input. The theoretical and empirical characteristics of this proxy indicate it may be useful in linear asset pricing models as an instrumental variable.