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Persistent link: https://www.econbiz.de/10011381729
We document a strong and robust positive relationship between real rates and the contemporaneous valuation of volatile stocks, which we contend measures the economy's risk appetite. Our novel proxy for risk appetite explains 41% of the variation in the one-year real rate since 1970, while the...
Persistent link: https://www.econbiz.de/10012920896
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Persistent link: https://www.econbiz.de/10011873657
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
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We present a dynamic two-country model in which military spending, geopolitical risk, and government bond prices are jointly determined. The model is consistent with three empirical facts: hegemons have a funding advantage, this advantage rises with geopolitical tensions, and war losers suffer...
Persistent link: https://www.econbiz.de/10015056136
We document a strong and robust positive relationship between real rates and the contemporaneous valuation of volatile stocks, which we contend measures the economy's risk appetite. Our novel proxy for risk appetite explains 41% of the variation in the one-year real rate since 1970, while the...
Persistent link: https://www.econbiz.de/10012453187
This paper analyzes how the risks of nominal and inflation-indexed Treasury bonds vary with the presence of supply and demand shocks through the lens of a small-scale New Keynesian model with habit formation preferences, where investors become more risk averse following adverse economic shocks....
Persistent link: https://www.econbiz.de/10013403693