This paper focuses on the predictive role of inflation and interest rates in forecasting stock returns. We report economically significant in-sample evidence that stock returns are predictable using cyclical components of inflation and interest rates. The out-of-sample analysis results show that...

This paper presents a common trend VAR model, which allows us to estimate trend and cyclical components of output, inflation, and interest rate. From a theoretical perspective, we build upon the consumption Euler equation, which implies that there exists a cointegration relation between the...

This paper shows that the economy can be described by two factors: an inflationary demand factor and a deflationary supply factor. More specifically, our approach combines the use of several filtering techniques to extract business cycle fluctuations and dynamic principal components analysis...