Abstract

http://ssrn.com/abstract=1786968
 
 

References (24)



 


 



Durable Goods, Inflation Risk and the Equilibrium Asset Prices


Bjorn Eraker


University of Wisconsin - Madison - Department of Finance, Investment and Banking

Ivan Shaliastovich


University of Pennsylvania - Finance Department

Wenyu Wang


Indiana University - Kelley School of Business - Department of Finance

November 2012

AFA 2013 San Diego Meetings Paper

Abstract:     
High inflation predicts a decline in future real consumption and equity cash-flows, and the inflation non-neutrality is stronger for durable than for non-durable goods. This suggests that durables is an important channel through which inflation affects long-term aggregate growth and ultimately, asset prices. We derive and estimate an equilibrium two good nominal economy with recursive utility over durable and nondurable consumption, persistent variations in real expected growth and inflation, and inflation non-neutrality. Our model can quantitatively account for the unconditional moments and conditional movements in prices of nominal bonds and equity in durable and nondurable sectors. In the model, as in the data, durable equities earn higher risk premia, correlate more negatively with expected inflation and more positively with returns on bonds than nondurable stocks. We show that two-good structure, early resolution of uncertainty and inflation non-neutrality play the key role to explain these data features.

Number of Pages in PDF File: 56

Keywords: durable consumption, inflation risk, long-run risks, equilibrium yield curve, equilibrium equity return

working papers series





Download This Paper

Date posted: March 17, 2011 ; Last revised: May 14, 2014

Suggested Citation

Eraker, Bjorn and Shaliastovich, Ivan and Wang, Wenyu, Durable Goods, Inflation Risk and the Equilibrium Asset Prices (November 2012). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1786968 or http://dx.doi.org/10.2139/ssrn.1786968

Contact Information

Bjorn Eraker (Contact Author)
University of Wisconsin - Madison - Department of Finance, Investment and Banking ( email )
975 University Avenue
Madison, WI 53706
United States
Ivan Shaliastovich
University of Pennsylvania - Finance Department ( email )
The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Wenyu Wang
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

Feedback to SSRN


Paper statistics
Abstract Views: 871
Downloads: 205
Download Rank: 87,182
References:  24

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.391 seconds