Changing Beliefs About the Macroeconomy and Asset Prices

25 Pages Posted: 21 Mar 2011

Date Written: August 1, 2007

Abstract

This paper examines an equilibrium asset pricing model with Epstein-Zin preferences in which the beliefs about the fundamentals in the Macroeconomy are time varying. A vector autoregression with time varying parameters and stochastic volatilities of consumption growth and inflation is estimated using an MCMC algorithm. The model generates time-varying countercyclical market prices of risk and is able to match broad movements in short and long nominal bond yields.

Suggested Citation

Barillas, Francisco, Changing Beliefs About the Macroeconomy and Asset Prices (August 1, 2007). Available at SSRN: https://ssrn.com/abstract=1787575 or http://dx.doi.org/10.2139/ssrn.1787575

Francisco Barillas (Contact Author)

University of New South Wales ( email )

College Rd, Kensington
Sydney, 2052
Australia

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