Extreme inflation and time-varying expected consumption growth

Arbeitspapier

In a parsimonious regime switching model, we find strong evidence that expected consumption growth varies over time. Adding inflation as a second variable, we uncover two states in which expected consumption growth is low, one with high and one with negative expected inflation. Embedded in a general equilibrium asset pricing model with learning, these dynamics replicate the observed time variation in stock return volatilities and stockbond return correlations. They also provide an alternative derivation for a measure of time-varying disaster risk suggested by Wachter (2013), implying that both the disaster and the long-run risk paradigm can be extended towards explaining movements in the stock-bond correlation.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: SAFE Working Paper ; No. 334

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Price Level; Inflation; Deflation ; Financial Markets and the Macroeconomy ; Asset Pricing; Trading Volume; Bond Interest Rates
• Thema: Long-run risk ; inflation ; recursive utility ; filtering ; disaster risk

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Dergunov, Ilya ; Meinerding, Christoph ; Schlag, Christian
• Ereignis: Veröffentlichung
• (wer): Leibniz Institute for Financial Research SAFE
• (wo): Frankfurt a. M.
• (wann): 2022

Weitere Informationen

• DOI: doi:10.2139/ssrn.4001498
• Handle: http://hdl.handle.net/10419/249177
• URN: urn:nbn:de:hebis:30:3-619992
• Letzte Aktualisierung: 10.03.2025, 11:41 MEZ