Showing 1 - 10 of 61
I use nominal and real bond risks as new moments to discipline a New Keynesian asset pricing model, where supply shocks, demand shocks, and monetary policy are the fundamental drivers of inflation. Endogenously time-varying risk premia imply that nominal bond risks--as measured by their stock...
Persistent link: https://www.econbiz.de/10014226118
Persistent link: https://www.econbiz.de/10011381729
The past half-century has seen major shifts in inflation expectations, how inflation comoves with the business cycle, and how stocks comove with Treasury bonds. Against this backdrop, we review the economic channels and empirical evidence on how inflation is priced in financial markets. Not all...
Persistent link: https://www.econbiz.de/10014236299
"This paper decomposes excess return predictability in inflation-indexed and nominal government bonds into liquidity, market segmentation, real interest rate risk and inflation risk. We estimate a liquidity premium, which appears systematic in nature. It is around 40 to 70 bps during normal...
Persistent link: https://www.econbiz.de/10008936232
Persistent link: https://www.econbiz.de/10010501941
Persistent link: https://www.econbiz.de/10011819128
Our new model of consumption-based habit formation preferences generates loglinear, homoskedastic macroeconomic dynamics and time-varying risk premia on bonds and stocks. Consumers' first-order condition for the real risk-free interest rate takes the form of an exactly loglinear consumption...
Persistent link: https://www.econbiz.de/10013054872
We argue that corporate bond yields reflect fears of debt deflation. When debt is nominal, unexpectedly low inflation increases real liabilities and default risk. In a real business cycle model with optimal but infrequent capital structure choice, more uncertain or pro-cyclical inflation leads...
Persistent link: https://www.econbiz.de/10012940263
Persistent link: https://www.econbiz.de/10012418035
Using a century of data, we show that Treasury convenience yield and inflation comove positively during the inflationary 1970s-1980s, but negatively pre-WWII and post-2000. An inflation decomposition reveals that higher supply inflation predicts higher convenience, while lower demand inflation...
Persistent link: https://www.econbiz.de/10015056207