Abstract

http://ssrn.com/abstract=1786968
 


 



Durable Goods, Inflation Risk, and 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

January 1, 2015

Review of Financial Studies (2016) 29(1): 193-231
AFA 2013 San Diego Meetings Paper
Kelley School of Business Research Paper No. 2015-01

Abstract:     
High expected inflation is known to have a negative impact on future real growth. We show that this effect is significantly more pronounced in durable relative to non-durable goods sectors of the economy. Consistent with this macroeconomic evidence, the equity returns of durable-goods-producing firms have a larger negative exposure to expected inflation risks. We estimate a recursive utility model which features persistent growth fluctuations and inflation non-neutrality for durable and non-durable consumption. Our model can quantitatively account for the key moments of nominal bond prices and the levels, volatilities, and exposures of equity returns to expected inflation and bond returns.

Number of Pages in PDF File: 62

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


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Date posted: March 17, 2011 ; Last revised: January 11, 2016

Suggested Citation

Eraker, Bjorn and Shaliastovich, Ivan and Wang, Wenyu, Durable Goods, Inflation Risk, and Equilibrium Asset Prices (January 1, 2015). AFA 2013 San Diego Meetings Paper; Review of Financial Studies (2016) 29(1): 193-231; AFA 2013 San Diego Meetings Paper; Kelley School of Business Research Paper No. 2015-01. 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

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