The Real Explanation of Nominal Bond-Stock Puzzles
60 Pages Posted: 22 Jul 2021
There are 3 versions of this paper
The Real Explanation of Nominal Bond-Stock Puzzles
The Real Channel for Nominal Bond-Stock Puzzles
The Real Channel for Nominal Bond-Stock Puzzles
Date Written: July 20, 2021
Abstract
We present evidence that the mix of transitory and permanent shocks to consumption is changing over time. We study implications of this finding for asset prices. The uncovered dynamics of consumption implies modestly upward sloping real bond and equity curves, upward sloping nominal yield curve, and sign-switching correlation between equities and bonds consistent with the stylized facts. This is achieved without relying on the nominal channel too much. That is, as in the data, the variation of inflation in the model is under 40\% as a fraction of variation in nominal yields.
Keywords: Consumption dynamics, Stocks, Bonds, Term Structure
JEL Classification: E13, E21, E32, G12
Suggested Citation: Suggested Citation