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Asset Prices, Commodity Prices, and Money: A General Equilibrium, Rational Expectations Model

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  • Boyle, Glenn W
  • Young, Leslie

Abstract

An expected-utility-maximizing investor spends his portfolio income on commodities and real balances. Commodity prices and asset payoffs are determined endogenously in general equilibrium. The impact of commodity prices on investor welfare yields surprising relationships among the expected returns required on financial assets. Real (monetary) disturbances can generate a neg ative (positive) correlation between inflation and equity payoffs, but the expected nominal return on the equity can still be less (greater) than the nominal interest rate. The expected nominal return on an indexed bond can be greater than on a nominal bond. The expected real return on an equity can be lower than on an indexed bond. Copyright 1988 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 78 (1988)
Issue (Month): 1 (March)
Pages: 24-45

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Handle: RePEc:aea:aecrev:v:78:y:1988:i:1:p:24-45

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Cited by:
  1. George Darko & Richard Dusansky & Pankaj Maskara & Nadeem Naqvi, 2006. "The gains from trade in a small monetary economy," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 15(4), pages 403-430.
  2. Hatzinikolaou, Dimitris & Katsimbris, George M. & Noulas, Athanasios G., 2002. "Inflation uncertainty and capital structure: Evidence from a pooled sample of the Dow-Jones industrial firms," International Review of Economics & Finance, Elsevier, vol. 11(1), pages 45-55, April.
  3. Ricardo Lagos, 2009. "Asset Prices, Liquidity, and Monetary Policy in an Exchange Economy," 2009 Meeting Papers 390, Society for Economic Dynamics.
  4. Filip Abraham & Hilde Leliaert, 1991. "Foreign dependence of individual stock prices: The role of aggregate product market developments," Open Economies Review, Springer, vol. 2(1), pages 1-26, February.
  5. Du, Ding, 2006. "Monetary policy, stock returns and inflation," Journal of Economics and Business, Elsevier, vol. 58(1), pages 36-54.
  6. Ralph Chami & Thomas F. Cosimano & Connel Fullenkamp, 2001. "Capital Trading, Stock Trading, and the Inflation Tax on Equity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 575-606, July.

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