Nominal Bond Returns and the Money Growth Rate in a Simple Equilibrium Model

Posted: 21 Sep 1998

See all articles by David A. Chapman

David A. Chapman

McIntire School, University of Virginia

Thomas F. Cooley

New York University - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Abstract

In this paper, we fit the pricing kernel for U.S. Treasury securities using the SAINTS model of Constantinides (1992). Under a simple version of the stochastic growth model, knowledge of the pricing kernel identifies the (continuously-compounded) money growth rate implied by bond prices. This growth rate is used in a standard stochastic simulation of the model economy in order to examine the implied properties of nominal and real quantities in the model. By construction, this parameterization of the model is consistent with the unconditional properties of bond prices. We find that this implied monetary growth process improves the fit of the model in several dimensions but the behavior of yields still seems incompatible with the model.

JEL Classification: G12, G14

Suggested Citation

Chapman, David A. and Cooley, Thomas F., Nominal Bond Returns and the Money Growth Rate in a Simple Equilibrium Model. Simon School of Business Working Paper MP 97-02. Available at SSRN: https://ssrn.com/abstract=129248

David A. Chapman

McIntire School, University of Virginia ( email )

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Thomas F. Cooley (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

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